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New Export Tax on Iron Ore Retarding India-China Trade

"Together India and China could reshape the world order"

Dr. Manmohan Singh, Hon'ble Prime Minister of India

"India and China have become not only the world's fastest growing economies, but are also destined to become the world's largest... If they do manage to work together, they will surely create the new world..."

Clyde Prestowitz, President of the Economic Strategy Institute in Washington D.C.

India and China are two important names among the world's fastest growing economies. According to various forecasts and research results, China and India are expected to become the world's largest and third largest economy, respectively, by the year 2050. Two of the most powerful economies in Asia, India and China are trade partners in some of the most vital metals, minerals and other such resources indispensable for the economic growth. With immense scope and substantial potential for growth, these countries are witnessing a rapid spurt in the demand of minerals, metals and oil & gas. These countries are going to witness a long term boom in the demand and production of such products leading to a rise in their import and export. One of the major advantages or benefits enjoyed by these trade partners is the size of their markets and the proximity between them.

India and China have a long history of trade partnership, especially in metals and minerals. The major constituents of the China's imports from India in the category of metals and minerals include mineral products, base metals and articles of base metal, gems, and precious metals. The financial year 1999-2000 saw 60% increase in the exports of iron ore to China by India.

China's top imports includes

Mineral fuel and oil,
Iron & steel
Ore, slag and ash
Copper and related articles

The major portion of the India's import to china constitutes primary products like ores.

An important feature of Indian exports to China is that the top export items account for the maximum percentage of transactions. The following figures of 2003-04 reveal this:
- Top 3 export items accounted for 58.7% of total exports
- Top 5 export items accounted for 70.1% of total exports
- Top 10 export items accounted for 83.9% of total exports
Ores, slag and ash enjoy a unique position among the top 10 exports with a combined export share of 35% among all items.

India's Imports from China: Mineral fuels, mineral oils and products are the major constituents of India's imports from China apart from electrical machinery and equipment, organic chemicals etc.

Recent Scenario: In the Union Budget 2007-08, the Government of India has imposed an export duty of Rs. 300 or $7.21 per tonne of exported iron ore. This imposition may force the Chinese buyers to shift their focus on relatively cheaper available raw material from other countries like Australia and Brazil. China's iron ore imports have increased by 23.4 % to 100.19 million tones in December-January 06-07. But inspite of this increase in the demand, Indian ore exporters may suffer losses due to unsold, surplus inventory left with them as this tax imposition has already crippled and decelerated India's imports to China.

Export orders from top Chinese buyers of India's iron ore exports (nearly two-thirds) are almost on the verge of vanishing after the government slapped an export duty of Rs. 300 or $7.21 per tonne in this year's budget. This tax will also have an adverse effect on the expansion plans of the Indian producers who were planning to expand through sales in the international markets.

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New Export Tax on Iron Ore Retarding India-China Trade