President’s Desk – GCCI Bulletin February 2016

President’s Desk – GCCI Bulletin February 2016

Dear members,

One of the important matters with the Chamber in January, is the drafting of the pre-budget memorandum to be presented to the Union Finance Minister before the finalization of the Union Budget for the forthcoming financial year. It is generally a matter of routine, highlighting issues of one of the smallest states of the country. This time however was one indeed pressing matter which screamed for immediate redressal – the issue of the very survival of the mining industry and all its dependents.

Despite three harrowing and uncertain years, the industry has survived on the mere hope that eventually mining would take off. In the meanwhile, the Economics of Iron ore exports have changed completely with Iron ore prices currently trading at 5 year lows. The benchmark grade (62%) prices have declined from highs of 160 $/t in 2011 to current prices of $34/t FOB Goa on slowing Chinese iron ore demand and surplus iron ore production in Australia and Brazil. The prices for the lower grades have fared worst.

In December 2011, the Finance Ministry had raised the Export Duty on iron ore from 20% to 30% . After repeated requests from the Chamber as well as other mining associations, the Export Duty only on iron ore fines with grade below 58% was reduced to 10% with effect from 1st June 2015, whereas the rate remained 30% for all other ores including iron ore lumps with grade 58% and above.

Now, when permissions for mining are finally in place, there is a global oversupply and global prices for iron ore have crashed.

Resumption of mining with High export duty given the adverse market situation and additional burden of Goa Permanent Fund will sound the death knell for the Goa mining Industry. Therefore, it was critical that GCCI took up this issue with the Centre and sought redressal of this precarious situation faced by Goa.

An estimated 30,000 people comprising of mine workers , barge workers , machine operators, truck drivers , mechanics , labourers etc. depend directly on the mining activity for their livelihood which will be threatened if the Exports cease. It is estimated that at least 3,00,000 people in Goa are indirectly dependent on mining. This would further impact indirect tax collection.
Loss of business for people involved in mining related activities like barge owners, launch owners, shipping agents, stevedores, road transport contractors, ports, etc. would again adversely impact the Central and State revenues. Already faced with a budget deficit , the State Government would not be able to sustain the economical and social fallout.

The Low grade iron ore exports from Goa have turned uneconomical unlike the high grade mines in Eastern sector which have found a ready market due to shortages arising out of regulatory restrictions. Goa being located on the coast, and blessed with inland waterways, such ores were best suited for export to overseas markets, which used the ore for blending with higher grade ores from other sources. The cost of inland transportation to domestic steel plants in India makes the use of such low grade ore (which also contains higher gangue material) domestically prohibitive, apart from the fact that it requires higher consumption of coking coal which India has to import.

In the current tough global market situation, it was therefore necessary that the plethora of taxes imposed on the iron ore industry in Goa / India were rationalized, beginning with the export duty on iron ores (which is also applicable to the low grade iron ore from Goa that has no domestic demand), so as to enable the industry to remain afloat.

We highlighted these issues in our Pre-Budget memorandum and informed the FM that in the past also, the Government of India had acknowledged the fact that low grade deposits of Goan ore are inconsumable nationally and had exempted Goan ores from Duty on exports irrespective of their grade. Considering all this, even the EXIM policy always specifically exempts Export of iron ore of Goa origin to China, Europe, Japan, South Korea and Taiwan (irrespective of Fe content).

The Chamber pointed out that the Government of India and Government of Goa together receive a substantial revenue per tonne on export at current levels in terms of Royalties, VAT, Duties, Service Tax etc. which are direct in nature and the cessation of exports will impact the State revenues severely.

We stressed that the unique position of the Goan mining industry and the current market dynamics demand a customized solution for the problems facing the mining industry in Goa. GCCI therefore recommended that the export duty on all ores from Goa be withdrawn completely.

It gave GCCI immense satisfaction and relief that the Finance Minister acceded to our request and announced in February in the 2016-17 Union Budget, the removal of export duty on all ores with FE content of below 58%. This will give a much awaited boost to our Goan mining industry !

The overall 2016-17 Union Budget proposals are in line with the development priorities of the nation. The focus on boosting rural economy and the infrastructure sector will surely yield dividends and we foresee a multiplier effect in the form of demand generation and employment creation over time. The state of the agriculture sector on account of two consecutive years of monsoon failure was precarious and it got the attention that was needed.

There are slew of measures in the budget to kick start the investment activity in the economy, creation of demand in the rural economy and capitalisation of nationalised banks should help in easing liquidity. Budget also has few incentives to put more money in the hands of small tax payers. Though there is no direct tax relief provided to the middle class, the exemptions provided on housing loan interest for first time home buyers and affordable housing would boost the stressed residential sectors.
Government has allocated Rs 500 crore for scheduled caste, scheduled tribes and women entrepreneurs in the Budget under the Stand Up India scheme. FM has proposed setting up a national hub in the Ministry of Micro Small and Medium Enterprises (M SME ) in partnership with industry associations which will provide professional support to scheduled caste/scheduled tribes . This will give a big boost to development of entrepreneurship amongst the disadvantaged sections of our society.

So overall a good budget and specifically great for the Goan Mining Industry.

Narayan Bandekar
(President – GCCI)