India's reliance on foreign iron ore is set to run into a second year, making the case for court-mandated caps on domestic production to be lifted, according to the nation's mining lobby.

Imports may total 10 million metric tons in the year ending March 31, R.K. Sharma, secretary general of the Federation of Indian Mineral Industries, said in an interview this week. At the same time, exports are slumping due to government taxes on shipments and the collapse in international prices for the steel-making material, he said.

It's a stark turnaround from three years ago, when India was the third-biggest exporter of iron ore, able to satisfy demand from a steel industry ranked fourth largest in the world and sell its surplus of low-grade ore to China at a time when prices were double or triple where they are now.

India's steel producers have faced raw material shortages since 2011, after courts found illegal iron ore mining and imposed successive bans in the top producing states of Karnataka, Odisha and Goa. While the bans have since been lifted, the states are subject to output caps. India produced 129 million tons of iron ore in 2014-15, down from 207 million tons in 2010-11, according to federation data.

"The restrictions on mining are hurting the steel industry, especially in Karnataka. We will have to import high grade iron ore to feed steel plants," Sharma said by phone from New Delhi. The restart of some mines should cut imports from last year's 12.1 million tons, he added.

The lack of domestic availability is a weight on steel company profits, said Ashish Kejriwal, an analyst with Elara Securities (India) Pvt in Mumbai. "Supply in certain pockets is not up to the mark and companies have to buy from other sources, which proves to be costly for them," he said.

Sharma said he expects exports this year at 5 million tons, down from 7.3 million tons in 2014-15 and a fourth year of decline.

Iron ore prices slumped in July to their lowest level in at least six years as major miners in Australia and Brazil ramped-up production to win market share even as growth in China, the world's biggest steelmaker, slowed. India bears the additional burden of royalty taxes and export duties of 10 per cent on lower grade ore, and 30 per cent on higher grade material, Sharma said.

"For exports, there is not much scope, as prices are at rock bottom and there are hardly any buyers," he said. While the coastal state of Goa, traditionally an export hub, prepares to restart mining in October, progress could be slow as producers clear operational hurdles such as draining water from mines idled for three years, he said.