KOLKATA (miningweekly.com) - Indian industry representative body, the Associated Chamber of Commerce and Industry (Assocham), has opposed government’s move to hike royalty rates to 15% from 10% at present.

Assocham has claimed that an increase in royalty rates would be detrimental to mining sector growth and retard the revival of the iron-ore sector, in particular aggravating the existing shortage of raw materials faced by the domestic steel producers.

The chamber has pointed out that even the 10% average current royalty rate was high compared to countries with developed mining industries.

According to Assocham, Brazil, one of the largest iron-ore producers, with domestic steel production similar to India, had a royalty rate of 2%, while Australia had rates varying between 2.7% and 7.5% and South Africa 3%.

Against this backdrop, the proposed 15% royalty rate would hinder unleashing the full potential of the Indian mining industry, the chamber said.

Indian Finance Minister Arun Jaitley had proposed the increase in royalty rates while presenting the country’s federal Budget 2014/15, earlier this month.

Quick estimates by the Mines Ministry indicate that increasing the royalty rate to 15% from 10% would result in incremental revenue to the tune of $2-billion for the mineral bearing-provinces across the country. The royalties are levied on mineral extraction and accrued to the provinces where mining operations were undertaken but the rate was fixed by the federal government.

The last revision in royalty rates was implemented in 2009, and several mineral-rich provinces like Odisha, Chattisgarh, Jharkhand and Karnataka had been demanding a revision to increase their revenue streams.

In a communication to the Finance Minister, Assocham secretary general D S Rawat said: “In the interest of the domestic steel industry, we request the government not to increase the royalty rate on iron-ore from 10% to 15%.”

Assocham had argued that the higher iron-ore royalty rates would be passed on by miners to steel producers, who, in turn, would pass on the higher burden to end-users, thereby stoking inflationary pressures.

The higher royalty rates, coupled with the 6.5% hike in freight rates proposed by the government-owned and -managed Indian Railway, would make Indian steel prices uncompetitive in domestic markets, it said.

According to the Federation of Indian Mineral Industries, the hike in mineral royalty rates could not be opposed as it was part of the country’s mining legislation, but miners would have no choice but to increase base rates of iron-ore, as the cost of production would go up.