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[23rd January 2025] The Hindu Op-ed: China’s moves must recast India’s critical minerals push

op-ed snap | Economics | Mains Paper 3: Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth

PYQ Relevance:

Q) Discuss the multi-dimensional implications of uneven distribution of mineral oil in the world. (UPSC CSE 2021)

Mentor’s Comment: UPSC mains have always focused on Chinese dominance in Geopolitics (2024) and Mines and Minerals in Indian Economy (2021 & 2022).

 

Despite having the fifth-largest reserves of rare earths globally, India currently lags in all stages of rare earth development. India heavily relies on China for critical minerals, with significant import percentages for essential resources such as lithium (82%), bismuth (85.6%), and silicon (76%). This dependency poses risks to India’s economic security. The International Energy Agency predicts that demand could double by 2030 and quadruple by 2040.

 

Today’s editorial emphasizes the challenges posed by the Critical Mineral industry at national and Global level. This content can be used for presenting the challenges in the Indian Economy with respect to Critical Mines and Minerals and Trade issues.

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Let’s learn!

Why in the News?

China’s recent actions (expanded its export control list by including 28 entities), including potential export restrictions, have heightened fears about India’s reliance on Chinese supplies of critical minerals like lithium, cobalt, and rare earth elements.

  • China controls a substantial portion of the global supply of critical minerals, producing about 60% of rare earth elements, 50% of lithium, and 70% of cobalt.
  • This dominance extends to processing, where China handles approximately 80% of the world’s critical mineral processing, allowing it to influence global prices and availability significantly.

What are the implications of China’s dominance in the critical minerals supply chain for India’s Economic Security?

  • Supply Chain Vulnerability: India’s heavy reliance on Chinese imports for critical minerals like lithium and cobalt creates significant risks, as China’s control over a large share of global production and processing capacity could lead to supply disruptions or price increases.
  • Geopolitical Leverage: China’s ability to restrict access to critical minerals during geopolitical tensions poses a direct threat to India’s energy transition and economic stability, potentially hindering its renewable energy goals.
  • Need for Strategic Diversification: In response to these challenges, India must pursue strategic partnerships with resource-rich countries and invest in domestic mineral exploration and processing capabilities to reduce dependence on China.
  • Global Competition and Sustainability: As global competition for critical minerals intensifies, India must balance its pursuit of resource independence with sustainable mining practices, ensuring long-term availability while addressing environmental concerns.

 

What are the key challenges in developing India’s domestic critical mineral production?

  • Limited Exploration and Development: Complex geology, lack of advanced exploration technologies, and regulatory hurdles slow down the discovery and commercial extraction of resources like lithium and cobalt.
  • Processing Capacity Gaps: India lacks sufficient domestic processing and refining facilities for critical minerals. This gap forces the country to depend on foreign processing.
  • Regulatory and Policy Constraints: Existing regulations reserve certain critical minerals for public sector undertakings, limiting private sector participation in exploration and mining.
    • Additionally, the need for an updated list of critical minerals in the Mines and Minerals (Development and Regulation) Act hampers timely exploration efforts.
    • Establishing new exploration and processing activities involves long gestation periods, which can delay India’s efforts to become self-reliant in critical minerals.
  • Skilled Workforce Shortage: There is a shortage of skilled manpower in the materials, minerals, and metals sectors due to gaps in specialized training and advanced skills development.
  • Environmental Concerns: Mining activities can lead to significant environmental degradation, including biodiversity loss, water depletion, and pollution. Addressing these concerns while developing mineral resources poses a challenge for sustainable practices.

How can India effectively reduce its dependency on Chinese imports for critical minerals?

  • Domestic Exploration and Production: India is focusing on enhancing its domestic mining capabilities by identifying and exploring critical mineral reserves within its territory.
    • For Example, the recent discoveries of lithium deposits in states like Jammu and Kashmir, Rajasthan, and Karnataka highlight the potential for self-reliance in critical minerals essential for renewable energy technologies.
  • Critical Minerals Mission: Government has launched a Critical Mineral Mission aimed at securing domestic production, recycling, and overseas acquisition of critical minerals.
    • This mission includes incentives for private companies to establish processing facilities and aims to reduce import duties on key minerals, thereby promoting local processing and refining.
  • International Partnerships: India is actively seeking to forge strategic partnerships with resource-rich countries, particularly in Africa and Latin America, to secure mineral blocks through government-to-government agreements.
    • This includes investments in countries like Australia, Chile, Ghana, and South Africa to diversify supply sources and mitigate risks associated with over-reliance on China.
  • Regulatory Reforms and Investment: The Indian government is implementing regulatory reforms to attract private investment in the critical minerals sector.
    • This includes auctioning critical mineral blocks to both state-owned and private companies, establishing entities like Khanij Bidesh India Ltd. (KABIL) for overseas acquisitions, and enhancing the National Mineral Exploration Trust (NMET) to support exploration efforts.

Key Significant Features of the Mines and Minerals (Development and Regulation) Amendment Act, 2023 

  • Private Sector Involvement: The amendment allows the private sector to explore and mine six critical minerals previously restricted to state agencies, including lithium, beryllium, niobium, titanium, tantalum, and zirconium. This shift encourages private investment and expertise in the mining sector.
  • Exploration Licenses (EL): The introduction of Exploration Licenses enables private companies to conduct reconnaissance and prospecting for critical minerals. This is expected to attract foreign direct investment (FDI) and engage junior mining companies, thereby boosting exploration efforts for deep-seated minerals.
  • Exclusive Auctions for Critical Minerals: The central government is empowered to auction mineral concessions for critical minerals such as rare earth elements, cobalt, and nickel. This streamlined auction process is designed to accelerate production and generate revenue for state governments.
  • Revenue-Sharing Mechanism: If resources are proven after exploration, the state government must conduct an auction for mining leases within six months. The exploration licensee will receive a share in the auction value of the subsequent mining lease, incentivizing exploration activities.

What role do global market dynamics play in shaping India’s critical mineral policies?

  • Geopolitical Influences: The competitive landscape of critical minerals is heavily influenced by geopolitical tensions, particularly with China, which dominates the supply chain.
    • India’s policies need to be increasingly designed to mitigate reliance on Chinese imports by fostering partnerships with countries like the U.S., Australia, and members of the Quad, aiming for a more diversified and secure supply chain.
  • Investment in Domestic Capabilities: To counteract dependency on imports, India should  implement regulatory reforms to attract private investment in the mining sector.
    • This includes auctioning mineral blocks and promoting initiatives like the National Critical Minerals Mission, which aims to strengthen the entire value chain from exploration to processing.
  • Need for Strategic Sourcing: Global market fluctuations can lead to price volatility for critical minerals, prompting India to develop a carefully crafted import strategy.
    • This strategy focuses on establishing stable relationships with resource-rich nations and diversifying sourcing options to mitigate risks associated with supply disruptions.
  • Fiscal Incentives: A possible remedy is to offer larger upfront fiscal incentives during the exploration phase. In other words, pledging direct capital support early in the construction phase might be to approach critical minerals extraction as a semiconductor fabrication project.

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