Mining industry demands cut in iron ore royalty to 7.5%

According to FIMI any increase in royalty will result in phenomenal rise in prices

Opposing the proposal to hike royalty on iron ore to 15%, mining industry has said any increase would impact small units and hit revenue to states due to unviable and resultant less production.

Miners' body Federation of Indian Mineral Industries (FIMI) said that the royalty should rather be lowered to 7.5%, from 10% at present, to induce growth.

A study group appointed by the Mines Ministry has circulated its recommendations, including hike in royalty on iron ore to 15%, to various stakeholders.

FIMI in a 'note of dissent' has said that hiking royalty rate to 15% would go in vain as net revenue to states would come down due to unviable and resultant less production.

"Any increase in royalty will result in phenomenal rise in prices. This will result in marginal grade mines going out of production. It will chock investments in new technologies and hinder development of low-grade mineral resources," FIMI said.

"Lessees would be prompted to mine higher grades, leaving low-grade minerals unmined. This would lower the production and eventually, the net revenue of the state is likely to be affected," it added.

Sources said the study group, constituted in 2011 under the chairmanship of an additional secretary in Mines Ministry, has suggested the hike in its second draft report which would be finalised later. It had made the same recommendation in the first report which was circulated among the stakeholders in May last year.

"There is no linear relationship of hiking royalties and getting higher revenues. The draft report of the study group has considered enhancing royalty rates as the only measures to increase revenue. Any increase in royalty rate will further deteriorate the situation. Rather it should be reduced to 7.5% to induce growth," FIMI said.

It said the move will have a huge cascading effect on the mining industry, which has already seen huge job cuts and shutting shops.

The iron ore sector has already seen huge tightening of exports resulting in a foreign exchange loss of about $17.5 billion between 2010-11 and 2012-13, FIMI said, adding this has further widened India's trade gap with China.