Iron ore pellet producers have told the government that they may be compelled to shut operations if the government does not roll back the 5 per cent duty imposed on exports of iron ore pellets. The shut down would render futile nearly Rs 35,000 crore of investment.
The government had imposing a 5 per cent export duty on iron ore last week, which the companies say has dealt a body blow to their investments and capacity expansion plans.
While recommending the duty, the steel ministry had argued that iron ore was being exported in the garb of pellets, which virtually amounted to exporting the scarce mineral. The finance ministry has imposed the duty despite objections raised by commerce and industry ministry. In a letter dated January 7, the commerce ministry wrote to revenue secretary Sumit Bose saying that it does not support export duty because pellet is a value-added product and it has been the ministry’s stance that there should be no export duty on the same.
However, the commerce ministry said that out of an installed capacity of over 75 million tonne, barely 25 MT is domestically consumed. It says the lack of low domestic demand has, in fact, compelled producers to cut down their capacity utilisation to less than 50 per cent.
Leading pellet producers have told finance ministry that while most plants would find it unviable to operate, bigger players may have to rethink on expanding the capacities unless the government addresses their concerns.
“The government hastily announced the 5 per cent export duty on pellets, despite the fact entrepreneurs have invested thousands of crores of rupees to create capacities and expand their operations. This action deepens investor’s fears of a stable policy. Flip-flop policies can turn investments sour overnight,” Essar Steel executive vice chairman Firdose Vandrevala told The Indian Express.
State-run Kudremukh Iron Ore chairman Malay Chatterjee said his pellet project in Karnataka has a capacity of 3.5 MT and is a 100 per cent export oriented unit, which had recently commenced overseas sale of pellets. “For my company the situation is even more worrisome. My unit can only survive on exports. The duty will hugely impact commercial viability of our operations,” he said. Chatterjee said that over 1,000 employees could be rendered jobless.
JSPL Group CEO Ravi Uppal said the move exhibits lack of consistency in government policy. “It is a decision without any rationale, which would do colossal damage to the pellet industry, which have invested over Rs 30,000 crore during the last three years.”
UK-based Stemcor’s India subsidiary Brahmani River Pellets Ltd MD ND Rao described the 5 per cent export duty as “a regressive step” and a hurdle towards investments in clean technology and natural resource conservation.
Vandrevala said little over 1 million ton pellets have been exported abroad till January this fiscal against the installed capacity of 75 MT. “I fail to understand what motivated the steel ministry to recommend the duty and how much revenue would the government gain in imposing it when exports are abysmally low.”
Senior officials of the Pellet Manufacturers Association of India said that the move to levy the duty is suspect and would virtually close down the industry.