While the government may be looking at policy prescription to fix the burgeoning trade deficit, market dynamics of the steel sector is doing its bit to add to the problem.
Raw material troubles in the domestic market have led to a 15.5% increase in steel imports, which are currently at 5.7 million tonne (MT) for the first nine months of 2012-13. This comes along with a massive 62.3% decline in iron ore exports.
It is estimated that the country lost about $10 billion worth of exports this year till November 2012. The country exported a mere 15 MT in the first eight months of the current fiscal less than half of almost 40 mt in the same period last year.
In fact, India, the world's third largest exporter of iron ore, imported the mineral for the first time in recent years. According to Federation of Indian Mineral Industries, India has imported 1 MT iron ore this fiscal till now and the total import is expected to reach 2 MT by March-end.
Although the fall in iron ore exports seen this year is drastic, this is not where it started. It is a trend that has been witnessed since 2009-10. Exports stood at 117.72 MT in the year but came down to 97.6 MT in 2010-11 falling further to 61.7 MT in 2011-12.
The ban on mining industry in Karnataka and Goa, hit exports. It altered the imports and exports scenario in the country and forced steel companies to import iron ore, the main ingredient for steel making.
"We used to export about 50% of produced iron ore. However, following the ban in the three states on mining, the sector has been in turmoil with production coming down drastically," said Anjani Agarwal, Metals and Mining leader, Ernst & Young.
He said whatever iron ore is being produced in India is consumed in the domestic market, leaving little room for exports and making India an importer of iron ore for the first time in recent years.
“We must have lost $10 billion worth exports this year till now.” The country's trade deficit had crossed $167 billion till January this year against $155 billion in the same period last year.
Global firms including Vale, Rio Tinto and BHP Billiton have gained on the back of iron ore exports from India coming down drastically in market where global prices have come down.
While the mining industry has been taking up the issue with the government, experts feel there won’t be any immediate resolution to this. Mining in Karnataka is expected to resume slowly but mining ban in Goa continues. RK Sharma, secretary general, FIMI, says it is very unlikely that situation will improve in the near future. Exports are likely to fall for the next few years.
He said the case of Goa and Karnataka mining industry is still pending with the Supreme Court, while in the case of Odisha, the state government is not cooperating. Above that, the government has imposed 30% duty on exports. “Unless export duty is abolished or reduced and railway freight charges come down, it will be difficult for the industry to come back to normal,” he added.