Iron ore producers may get incentives in the next budget for adding value to

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the mineral, a move aimed at encouraging its conservation for domestic use.

"The government may announce incentives for the iron ore miners to encourage more value-addition and pelletisation. The Steel Ministry has already sent a proposal to the Finance Ministry in this regard," a source said.

The government in the Budget for the current fiscal had raised the export duty on iron ore, both fines and lumps, to 20% from 5% and 15%, respectively and fully-exempted exports of iron ore pellets from any duty.

Justifying the hike in duty, Finance Minister Pranab Mukherjee had said, "This [iron ore] is a natural resource which needs to be conserved," and added that exemption of any duty on pellets is "to encourage the value addition process for fines".

Pellets are produced in globules form from very fine iron ore and mostly used for the production of sponge iron. However they are also used in blast furnaces in some countries.

Sources said the government is considering providing tax- holidays to miners to encourage setting up pellet capacities. They, however, he did not go into the specifics.

Though India is the one of the top exporters of iron ore in the world, its pellet making capacity is nothing significant. Against the world's 388 million tonnes of pellet production in 2010, India's contribution was just 18 million tonne.

The government's initiative has paid off as iron ore exports fell by nearly 30% during the April-November period to just 40 million tonne from 51 million tonne during a year ago.

Meanwhile, the government further increased export duty on iron ore to 30% towards the end of 2011.

Sources said around 25 million tonne pellet capacity is in the pipeline in the country and if government provides further incentives to the miners, more capacity would certainly come.