NEW DELHI – India's top iron-ore producing state of Odisha has warned steelmakers and miners of strict action over alleged grade manipulation and misdeclaration, according to documents reviewed by Reuters and three sources, a crackdown that analysts say could tighten domestic iron ore supplies.

India, the world's second-largest crude steel producer after China, is expected to produce 340-million to 345-million metric tons of iron-ore, the key raw material used in steelmaking, in 2026/27, up from about 316-million tons a year earlier, commodities consultancy BigMint said.

Any disruption to supplies from resource-rich Odisha could scupper those production targets.

The warning follows inspections that "revealed a consistent grade manipulation by the lessees," which include major steel producers, resulting in a "substantial loss" of state revenues, according to a July 6 government document reviewed by Reuters.

The companies named in the July 6 letter included JSW Steel, Tata Steel, State-run Steel Authority of India (SAIL), Jindal Steel and ArcelorMittal Nippon Steel India.

A Tata Steel spokesperson denied any discrepancies, saying it pays royalties as per prescribed norms and that most of its iron ore dispatches are in the highest royalty grade.

JSW declined to comment. SAIL and Jindal Steel did not respond to Reuters' emails seeking comment. Odisha's Directorate of Mines and Geology also did not respond to requests for comment.

Government officials met steel and mining associations and company executives last month to discuss the findings, according to July 13 meeting minutes and a source familiar with the matter.

"Any deliberate grade manipulation, misdeclaration or suppression of mineral value affecting government revenue shall be viewed very seriously and strictly dealt with," the meeting minutes showed.

Odisha's steel and mines department directed lessees to revise mining plans and seek approval from the Indian Bureau of Mines where actual ore grades differ from approved grades, according to the minutes.

Analysts say stricter inspections are already affecting lower grade ore availability.

Offers for lower grade ore have become limited in the merchant market over the past month because of intensified inspections by Odisha authorities, BigMint said.

"Since Odisha is the largest producer of iron ore in the country, if the issue escalates, it might impact the overall availability of iron ore in the country," said BK Bhatia, a mining expert and former director general of the Federation of Indian Mineral Industries.

Industry representatives disputed the state's allegations.

"Industry has raised concerns that the grades extracted are as per the geology and that is not under anyone's control," one industry representative said, declining to be identified because they were not authorised to speak to the media.