The central government has increased the export duty on iron ore lumps by 5 percentage points to 10 per cent and on iron ore fines to 5 per cent from nil, according to a finance ministry notification.

According to experts, the decision would have a serious impact on the mining sector.

"This decision has come at a wrong time when the exports were picking up and showing signs of recovery," said R K Sharma, secretary general of the Federation of Indian Minerals Industries (FIMI).

"This will have cascading effect on the steel industry. Finance ministry should have waited for some time before increasing the export duty and should have allowed the steel industry to recover from the global economic meltdown," he added.

India currently is the third largest exporter of iron ore in the world after Australia and Brazil.

FIMI had been clamouring for the removal of export duty on iron ore lumps, stating that the tax barrier along with high railway freight had out-priced the ore in the global market.

Analysts say the demand for Indian iron ore lumps had started shrinking in Chinese spot market, as Australian and Brazilian variants were low-priced.

Separately, the minister of state for steel A Sai Prathap said that the present production of iron ore in the country is sufficient for the present domestic steel capacity.

In a written reply in the Rajya Sabha last week, the minister said the production of iron ore in the country during 2008-09 was 227.64 million tonnes, while the domestic consumption of iron ore was estimated to be only 87 million tonnes.

During 2008-09, 105.86 million tonnes of iron ore was exported from the country.

However, ministry of steel is in favour of promoting value addition within the country and conservation of iron ore for long term utilisation by the domestic steel industry. In this regard, it may be mentioned that the government has approved the `National Mineral Policy' 2008 which inter-alia provides for preference to value adders in the allocation of mineral concession, the minister said.

Ministry of mines is in the process of bringing a new legislation to replace the existing Mines & Minerals (Development & Regulation) Act, 1957 to give effect to the intent of the National Mineral Policy, 2008 and recommendations of the Hoda Committee as approved by the government, the letter added.