NEW DELHI Feb 13, (Reuters) - India is weighing plans to route sales of iron ore through a firm, the latest of several steps aimed at curbing illegal mining as the country struggles to shape a lasting policy balancing exports against the conservation of resources.
At stake is how the world's third-biggest supplier will keep up its $6-billion, 100-million tonnes average annual exports, mainly to China, while stamping out illegal sales.
To tackle widespread illegal mining, India's trade ministry wants all ore with iron content of more than 55 percent to be sold through a firm such as metals trader MMTC (MMTC.NS).
The mining ministry and private miners oppose the measure, calling it a "draconian" step against free trade.
"We are all for controlling illegal mining, all for physical accountability of the ore ... (but) canalisation somehow does not gel with the idea of free trade," said Vishwapati Trivedi, the top bureaucrat in the mining ministry, referring to routing exports through a government trading agency.
"Modalities are still to be worked out. It's a bit too early to say whether it will be policy or what kind of shape it will take."
Slightly over half of India's annual production of 240 million tonnes of iron ore is of higher grade, coveted by both domestic steelmakers, who lack the technology to use ore fines, and exporters who get a better price for higher quality.
The trade ministry says sales through a state-run firm will ensure supplies are legal. Miners say it will be a new regulatory hurdle that will delay business and escalate costs.
Illegal mining in India is widespread and usually entails removing resources outside permitted zones. New Delhi has taken several steps to rein it in, among them higher export taxes and freight charges.
The country's Supreme Court has also cracked down, banning mining in a key state, prompting traders to slash forecasts for 2011/12 exports from India to around 50 million tonnes, about half last year's figure.
The government wants to conserve resources, but says it does not support a blanket ban on exports, making for an unclear position that has affected India's image of a stable supplier of iron ore.
If the trade ministry, which controls the state-run trading agencies, has its way, private suppliers can sign contracts but ship their consignment only through a state agency, perhaps MMTC, which is majority-owned by the government, which would take a commission for its monitoring role.
"The idea is higher accountability, which can come with better monitoring," said a source at the trade ministry. "Streamlining exports is the need of the hour if you want to check illegal mining."
Exports from Asia's third-largest economy have fallen sharply due to the increases in taxes and freight rates, while shipments from Karnataka state, one of the country's biggest producers, have stalled over the legal wrangle.
Sesa Goa (SESA.NS), a major ore seller, said in November that India's exports had already probably fallen by a third in 2011 to 65 million to 70 million tonnes.
The "canalisation" proposal is likely to be made to a panel of top civil servants this month before it goes to the cabinet of ministers for a decision.
"It will interrupt the smooth flow of trade without actually preventing illegal mining because illegal mining is a governance issue," said R.K. Sharma of top trade body, the Federation of Indian Minerals Industry.
Analysts are also skeptical about the move.
"If canalisation happens what will happen is the focus on targeting markets and best pricing will suffer," said Bhavesh Chauhan, researcher with Angel Broking.
"It will be seen as a regulatory hindrance."