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mains Test Series 2018
Q. Regulation of iron ore prices: Comment on the proposal of regulating iron ore prices in India.
Apr 24, 2017 Related to : GS Paper-3

Ans :

Introduction-

It has been reported that the central government is considering the steel ministries proposal of regulating the iron ore prices. Earlier the secretary to the steel ministry has said that, there needs to be some sharing of the profits in case of steel mining, and his ministry is working on a formula that might act like a cap on iron ore prices. Though the proposed regulations have some positive impact, but many are criticising, as such move will throw back steel industry to the time of licence raj system.

Analysis-

  • Iron ore is an important natural resources and play very important role in the development of the nation. Iron ore prices rose to their highest since August 2014 last month in China, the world's top producer and consumer of steel. 
  • In this background, steel ministry has expressed it opinion that, the price of  iron ore should not move like the sensex, as such price fluctuations make it very difficult for an industry to work. Hence it is sent proposal to regulate the iron ore prises.
  • But, the governments earlier decisions like, abolishing captive mining, throwing mining rights open to the highest bidder etc were aimed at allocating resources rationally and to remove one major avenue of crony capitalism.  
  • Hence it looks strange that, the steel ministries proposal is reversing the logic of such market orientation that present government practicing through various initiatives. 
  • Today, steel is globally traded commodity and Indian steel producers benchmark their output price to import parity. Mining is an economic activity that employs a large number of people in backward areas of the country.
  • Hence regulating the prices may affect the industry both in terms production and employment negatively. Hence instead of regulating the prices of ore mines, the government should invest in itself to raise productivity, which lags that of global peers, and in stepped up capital formation.

Conclusion-

The proposal of regulating the ore prices in India is pending in front of the government and government is actively considering this proposal. But regulating ore prices in a liberalised competitive environment may affect the industry negatively. Hence instead of regulation government should focus on investing new technologies that will enhance the productivity.


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