Rs 29,000 Crore Revenue Loss to Karnataka


The Federation of Indian Mineral Industries (FIMI), Southern Region has made an appeal to the Ministry of Mines, Karnataka to take appropriate facts and urgently submit necessary facts before the Hon’ble Supreme Court, in order to rectify the gross imbalance that has arisen due to the prohibition on exports and seek urgent rectification of the situation by permitting export of iron-ore from Karnataka.

The restrictions on trade of iron ore in Karnataka is suppressing the growth of the sector and have significant deleterious effects on the industry and also the public Exchequer. The restrictions on sale of iron ore in Karnataka were imposed by the Hon’ble Supreme Court keeping in mind the situation prevailing in 2011-12. At that time, mining operations had come to a complete halt in view of prohibitory orders made by the Apex Court. As per estimates, the gross loss over a 10-year period to the State of Karnataka is approximately INR 29,058.8 crores due to ban of iron ore exports. The rest of India is exporting iron ore as per the EXIM policy of Government of India thereby ensuring fair revenue to the State Exchequer including foreign exchange as well as overall growth of the nation by using the railways, port facilities etc. As per the data available, the total export in the year 2019 from other parts of India shows export of 10.34 MMT of fines and 1.16 MMT of lumps.

While, during the same period, the state of Karnataka, lagged when there is a surplus of 5.19 MMT fines arising due to additional production from auctioned C category leases and expired leases. Hence, an alternative market is urgently required since surplus iron ore may remain unsold even if the entire domestic demand is met from leases in Karnataka and without recourse to material from outside the State. In Karnataka, approximately 70% of the sourcing is by single major steel player. These restrictions are also distorting the market as the buyer has the freedom of trade, i.e. right to purchase iron ore from either the e-auction or from other States or even to import from overseas. This has created a skewed market, disadvantageous to sellers as they can only sell to domestic end-users.

At present, the value of iron ore which is consumed captively, is derived from the IBM prices. This is affected by the monopsony arising from the e-auction system. The huge pressure on the lessees due to large scale imports (sometimes at higher prices than local ore) has forced lessees to resort to distress sale (since the iron ore remained unsold for many months and in some cases years). Consequently, IBM index price for Karnataka is low. From Jan 2018 to May 2019, iron ore prices have gone down in Karnataka by -18.7 %, although IBM prices for Odisha and Chhattisgarh have only marginally reduced by -2.7% and -7.7% respectively.

The reduced price of iron ore sold in e-auction, also has a direct impact on levies to be paid to State of Karnataka since the same are fixed, ad valorem and on the basis of the sale price. The State’s revenue is 30% of the sale price. Hence, the recovery of true value will substantially enhance the revenue of State Exchequer. Pertinently, revenue at the aforesaid rate will accrue to the State even on export. On the other hand, where ore is imported by consumers in Karnataka, the State earns only 2.5% import duty. In 2018-19, approximately 6.67 MMT of iron ore was imported into the state, as a substitute for locally produced iron ore, thereby leaving unsold stock in mines and causing loss of revenue to the State of Karnataka. These imports have also affected sale of 8 MMT of old stocks.