AGAINST THE TIDE

Over the last one month much has been said about the price inflation facing our country. Some have blamed external factors including American depression and its protectionist policies while others have sought to understand it in terms of the rising price of food grain and/or iron ore and steel.

The rising price of iron ore and steel…

How? How’s it that the shining India advocated by successive political outfits is turning out to be a mirage? How is it that the price of iron ore and steel has reached such alarming proportions that India, nay world is being held to ransom?

It’s ironical that the two men responsible for this include two Indians. Steel magnate, LN Mittal, one of the world’s richest men; and Dr Manmohan Singh, a celebrated Third World economist, and as fate would have it, India’s Prime Minister.

Let me start with the latest “concerned” appeal of Dr Manmohan Singh, the PM in question.

On his recent journey to Jamshedpur, to commemorate the centenary year of Tata Steel plant, the PM is reported to have appealed to the steel lobby asking it to give up greed and think of the consumer, “I would humbly advise our steel industry to take a long-term view and not fall prey to the temptation of seeking windfall gains from market manipulation in a period of excess demand.” (Incidentally, this is the same PM who few months back at a meeting of steel producers also remarked that India needs to develop “nerves of steel.”)

Elsewhere, his able lieutenant, and India’s Finance Minister, P Chidambaram has voiced his concern by accusing the steel producers of acting like a cartel.

The response to the “appeals” from the one of the members of the cartel is a telling one. Tata Steel Managing Director B Muthuraman is said to have responded thus: “We are living in unprecedented times for the global steel industry. Prices have surged to unprecedented heights.”

To understand what these men are talking about we need look no further than the 90s – the decade that is widely held as the decade that catapulted India into the international chamber of economic power-horses.

While most of us in the 90s were happily lapping up the liberlalisation policies of the then Congress government none of us (maybe because we are not economists) understood its intent.

As many are acutely aware, one of the most important steps of Manmohanomics in the 1990s was to de-nationalise steel production in the country. Enter the Tatas, Essar (Birlas) & Jindals to name the top few. During this time iron ore production jumped from 470 million ton (MT) in 1980-90 to 656 MT between 1990-2000. In the 2001-2006 private mining of iron ore increased 143%.

Meanwhile, between 1989-2006, LN Mittal (the scion of Ispat Industries Limited – integrated steel producers - set up by ML Mittal (father) in 1985 as Nippon Denro Ispat)goes shopping across the world starting with third world countries (that are not protected by national mining policies) for iron ore mines and steel producing companies in the first world. In 2006 Forbes lists him as 3^rd richest in the world and worth $26 billion. In his own words, “These transactions dramatically change the landscape of the global steel industry.”

What it means:

1) he can negotiate nay, dictate higher prices from customers (and who are his prime customers or as business journalists like to call it “emerging markets”? Simple, infrastructure builders and automobile companies in India, China and Russia!)

2) he has single handedly through the instrument of acquisition and merger (A&M) created an oligopoly in the steel industry

3) is the king of an empire stretching from Canada to Caribbean, from Poland to Kazakhstan, from South Africa to India and Indonesia. The political ramifications of such a powerful man calling the shots cannot be ignored.

Now let’s return to the state of iron ore and steel industry in India.

Faced with Mittal’s “interests” in India, the Tatas, Birlas and Jindals, who have been making hay while the sun shone through the 90s, are thrown into a tizzy. Suddenly, in late-2007 we hear the call for a National Mining Policy – that simply put, requests the government to put into place a protectionist policy that would defend national players against “outsiders”. MPs from various “effected” states such as West Bengal, Jharkhand, Orissa, Chattisgarh and Maharashtra join in, in the spirit of swadeshi solidarity.

Meanwhile the ground realities:

a) Displacement —- tribal populations are being displaced (according to National Advisory Council 9 million tribal people have been displaced till 2006) while other displaced workforce is being brought in to work the mines – causing social dislocation, conflict and of course, culture and identity loss

b) Exploitation of person and state — eg. A mine worker who breaks iron ore into small rocks is paid Rs 13 per ton of iron ore. The State earns a meagre royalty of Rs 25 per ton. And the export rate of iron ore is $103 (roughly Rs 4,500) per ton. (90 per cent of privately owned mines are manually worked. It increases profit margins. And nearly 60 per cent of iron ore – by conservative estimate — is currently exported to China and Japan.)

c) Reckless exploitation of resources & degradation of environment — indiscriminate mining flouts all environmental bylaws plus to acquire more land Forest Land Act is being “amended” to accommodate mining interests and to exclude people’s opposition

d) Increased militarization of society — Special Forces Act is being brought in by the backdoor by various States (not only in Andhra Pradesh) to suppress people’s increasingly violent opposition

e) Inflation — the concern under current discussion in this article.

Given this scenario, how honest is the PM in his appeal to the steel lobby? And how, honest is the steel lobby when faced with PM’s appeal it says its “exercising restraint”?

The reality is sordidly opportunistic.

Just what level it can reach is best illustrated by the following:

In July 2007 Orissa government floated a tender for the “development” of the Khandadhar iron ore mines.

One of the 252 applicants was M/s Bhubhaneshwar Club Ltd.

The Club was listed as applicant no 56.

The Club is the watering hole of the state’s bureaucrats.

Given the above circumstances, can we still inflation?