#1 Critical Minerals - India’s Approach to Securing Essential Resources

Critical Minerals are essential elements that play a pivotal role in economic development and national security. They are crucial for various high-tech industries, including defense, aerospace, nuclear, and space applications. The supply chain of these minerals is often vulnerable due to their limited availability, and the concentration of extraction and processing in specific geographic regions, which increases the risk of disruption.

Classification Criteria for Critical Minerals

The criticality of these minerals is determined by two main factors:

1. Economic Importance (EI):

a. Disruption Potential: The impact of a supply chain disruption on the economy.

b. Substitutability Index (SI): The ease with which a mineral can be substituted by another.

c. GVA Multiplier Score: The mineral’s contribution to Gross Value Added (GVA) in the economy.

d. Cross-Cutting Index (CCI): The mineral’s importance across multiple sectors.

2. Supply Risk (SR):

a. Governance-weighted Material Concentration: The geographic concentration of a mineral’s production.

b. End-of-life Recycling Rates (EOL-RR): The percentage of a mineral that can be recovered from end-of-life products.

c. Import Reliance (IR) and Self-Sufficiency (SS): The degree to which a country relies on imports versus domestic production.

d. Substitutability Index (SR): The potential to replace a mineral with another without major disruptions.

Identified List of Critical Minerals in India

In July 2023, the Government of India identified 30 minerals as critical. These include:

Antimony
Beryllium
Bismuth
Cobalt
Copper
Gallium
Germanium
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Hafnium
Indium
Lithium
Molybdenum
Niobium
Nickel
PGE (Platinum Group Elements)
Phosphorous
Potash
REE (Rare Earth Elements)
Rhenium
Silicon
Strontium
Tantalum
Tellurium
Tin
Titanium
Tungsten
Vanadium
Zirconium
Selenium
Cadmium

Importance of Critical Minerals for India

1. Economic Development: Critical minerals are foundational to high-tech industries, including electronics, telecommunications, transport, and defense. India’s ambition to become a semiconductor manufacturing hub heavily relies on the availability of these minerals.

2. Energy Transition and Net-zero Emissions: These minerals are crucial for the development of renewable energy technologies like solar panels, wind turbines, and advanced batteries, which are vital for India’s goal of achieving net-zero emissions by 2070.

3. Establishment of a Competitive Value Chain: Discovering and utilizing critical mineral wealth will enable India to build a competitive value chain, attracting foreign direct investment (FDI) from countries pursuing a China+1 strategy.

4. National Security: These minerals are indispensable for defense, aerospace, nuclear, and space sectors, contributing to the development of materials that withstand extreme conditions, thereby bolstering national security.

5. Reducing Import Dependence: India currently imports a significant portion of its critical minerals. Enhancing domestic exploration and production will reduce the import burden and help mitigate the current account deficit.

Challenges with Critical Minerals

1. Geopolitical and Oligopolistic Monopoly: The concentration of critical minerals in a few countries leads to geopolitical monopolies and oligopolistic markets.

For example, Australia controls 55% of lithium reserves, while China dominates 60% of rare earth production.

2. China’s Dominance in Processing and Refining: China plays a central role in global critical mineral supply chains, particularly in processing and refining, with about 60% of worldwide production and 85% of processing capacity, giving it significant geopolitical leverage.

3. Geopolitical Risks: The geographical concentration of critical minerals makes them susceptible to geopolitical risks, such as conflicts, trade disputes, or sudden policy changes, which can disrupt supply chains.

For example, the civil war in the Democratic Republic of the Congo has impacted global cobalt supply, as 70% of the world’s reserves are located there.

4. Resource Nationalism: Resource conflicts due to geographical concentration have increased resource nationalism and trade fragmentation, particularly in Africa.

5. Price Volatility: Unlike oil, critical minerals are not widely traded on exchanges, leading to price volatility and uncertainty. Insufficient data on consumption, production, and trade further exacerbates these issues, delaying investments.

6. Rising Import Bill: Between FY22 and FY23, India’s import bill for critical minerals rose by 34%, totaling nearly Rs. 91,000 crore, posing a risk to industrial and energy security.

7. Environmental Concerns: Mining activities for critical minerals can cause significant environmental damage, including biodiversity loss, water depletion, and pollution. For instance, lithium mining in Chile’s Atacama desert is highly water-intensive.

8. Long Gestation Period for Alternatives: Developing alternative sources and processing capabilities, like India’s plans with Australia, can take over 15 years, delaying self-reliance.

Government Initiatives for Critical Minerals in India

1. Amendment to Mines and Minerals (Development and Regulation) Act, 1957: The MMDR Amendment Act, 2023, empowers the Central Government to auction blocks of 30 critical minerals and permits private sector entry through auctions.

2. FDI Liberalization: In 2019, India allowed 100% FDI in certain minerals, reclassifying previously atomic minerals to facilitate private-sector mining.

3. International Collaboration: India joined the Mineral Security Partnership, a US-led initiative involving 13 countries and the EU. Khanij Bidesh India Ltd. (KABIL) is assisting Argentina in lithium exploration and discussing lithium and cobalt blocks in Australia.

4. Institutional Initiatives: The Geological Survey of India has launched over 250 projects to explore deep-seated critical minerals. India has also initiated startup challenges to develop advanced processing technologies.

5. Budgetary Support 2024: Customs duties on 25 critical minerals, such as lithium, nickel, copper, and cobalt, have been removed, and the concessional customs duty of 5% on lithium-ion cells has been extended until March 2026 to boost domestic manufacturing.

6. Critical Mineral Mission: Announced in the Budget 2024, this mission aims to promote domestic production, recycling, and exploration of critical minerals, reducing import dependence and supporting long-term national needs.

Way Forward

a. Implementation of Expert Committee Recommendations: Establish a Centre of Excellence for Critical Minerals (CECM) within the Ministry of Mines, modeled after Australia’s CSIRO, to collaborate on strategic mineral acquisitions.

b. Expansion of Mineral Security Partnership (MSP): Encourage more countries, especially mineral-rich African nations, to join the MSP, creating a platform for monitoring and securing critical mineral markets.

c. Encouraging FDI in Domestic Mining: Attract foreign expertise in mining to aid in domestic exploration and benefit sectors like battery and EV manufacturing.

d. Investment in Beneficiation and Processing Facilities: Develop processing facilities in Africa to foster sustainable relationships and support local economies.

e. Path to Global Leadership: India can become a global leader in critical minerals by emulating Indonesia’s success in nickel production, utilizing both domestic and international resources.

f. Alignment of Mineral Incentives: Ensure that the production-linked incentive scheme aligns with global aspirations, creating employment and supporting the critical minerals sector.