The former boss of Rio Tinto has said that the world's biggest mining companies are behaving rationally by digging out more iron ore even as prices continue to fall.

"This is a realistic market response, and one that was actually quite well-anticipated five years ago," Tom Albanese, who ran the Anglo-Australian giant between 2009 and 2013, said.

Iron ore prices have plunged 41 per cent this year to below $US80 a tonne, their lowest level since 2009, exacerbated in large part by the world's three top iron-ore miners -- Rio Tinto, BHP Billiton and Vale -- ramping up production in the hope that they can profit from efficiencies of scale.

"If you look at the forward curve two years ago, if you look at the estimates of supply and demand, there are no real surprises in the present market place that had not been anticipated," Mr Albanese, who is now chief executive officer of Vedanta, an Indian diversified mining company, said.

Mr Albanese said Vedanta, which produces iron ore at a smaller scale but similarly low cost to the majors, could profit by following the same model.

"The message is the same. Keep your costs low, stay in the first quartile, and you can basically muscle through whatever the iron-ore markets deliver," he said.

First, the company will have to boost output from its Indian and Liberian mines.

Last year, Vedanta only produced 1.5 million tonnes of iron ore, almost 60 per cent less than in 2012, a reduction caused in large part by the imposition of an Indian government ban on mining in the southern state of Goa. Mr Albanese said the ban had since been lifted following a court order, but mining has yet to resume.

He also expressed optimism that India's new government, headed by Prime Minister Narendra Modi, will be more business friendly and help encourage the kind of investment needed to ensure India's burgeoning demand for steel products is met by local iron ore miners.

"From a longer term perspective, India will need 300 million tonnes of steel demand from a current level of 70 or 80 million tonnes of steel demand," Mr Albanese said, adding that if the government cuts back on red-tape and formulates clear rules for investing, domestic iron ore producers such as Vedanta could benefit.

"India has a strong, natural endowment of iron ore, as strong as the current major iron ore producers in the world," he said.