Customs duty reduction no big deal, says mining industry

To encourage value addition (conversion of low-grade iron ore into pellets) and augment overall ore supplies, the finance minister announced reduction of basic customs duty from 7.5 per cent to 2.5 per cent on imported plant and machinery for setting up of pellet plants and ore beneficiation ones.

This should benefit companies engaged in export of low-grade ore from Goa and Karnataka. A majority of the 55 million tonnes of iron ore exported by Goa last year was low-grade (below 55-56 per cent ferrous content). About 25 per cent of Karnataka’s ore exports are of low-grade. The government charges 30 per cent duty on ore exports.

However, the industry feels the duty reduction would not make much difference. For example, a company setting up a four-mt per annum capacity pellet plant requires an investment of Rs 1,200 crore, which includes an import content of Rs 100-150 crore. With a customs duty of 2.5 per cent for machinery, the units will not save much more than Rs 5 crore, said Vinod Nowal, director and chief executive officer, JSW Steel.

Agreeing with him, R K Sharma, secretary general, Federation of Indian Mineral Industries, said: “More than importing machinery, the big cost for companies is towards water and power. More, there are no new mining leases being allotted in various states.” He said the sector had wanted news on reduction of the export duty from 30 per cent, but was disappointed to find the minister hadn’t touched the subject.

Presently, India has a capacity of 18 mt of pellets annually, of which 2.5 mt are exported. Sharma said there was a huge difference between the price of pellets and iron ore. “It would not make economic sense for many steel mills to use pellets rather than ore directly. Hence, not many are interested enough to invest in one,” he said.

Further, the impact of a reduction in customs duty on coating material for manufacture of electric steel from 7.5 per cent to five per cent is negligible. Total electrical steel capacity in India is just 374,000 tonnes.

However, enhancing the export duty on chromium ore from Rs 3,000 per tonne to 30 per cent ad valorem is likely to make exports unfavourable, making the ore available for Indian steel makers.