Introduction of Critical Minerals

• As the world shifts towards clean energy, the demand for critical minerals has skyrocketed. 
• According to a study by the Council on Energy, Environment and Water (CEEW), just 15 countries control over 55% of the world’s identified critical minerals.
•  This concentrated control puts global supply chains at risk, particularly as countries like China, Australia, and the Democratic Republic of Congo dominate these resources. 
• The International Energy Agency (IEA) predicts that the demand for critical minerals will increase four-fold by 2040, driven by the clean energy revolution. 
• India, which is heavily dependent on imports for minerals such as lithium, cobalt, and nickel, faces a growing challenge to secure these vital resources. 
• To address this, India’s government introduced the Critical Mineral Mission as part of Budget 2024-25, aimed at increasing domestic production and enhancing recycling to reduce dependence on foreign imports.

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What are Critical Minerals? 

• Critical minerals are those minerals which are essential for economic development and national security.
• The lack of availability of these minerals or even the concentration of existence, extraction, or processing of these minerals in a few geographical locations may lead to supply chain vulnerability and disruption.

The Classification of Critical Minerals in India

• India classifies critical minerals based on two main factors: Economic Importance (EI) and Supply Risk (SR). These two criteria help assess the minerals’ impact on India’s economy and their vulnerability to supply disruptions.
• Economic Importance (EI): This includes factors like disruption potential, substitutability, and Gross Value Added (GVA) multiplier, which highlight the minerals’ role in driving economic growth. For example, lithium is critical for India’s plans to expand its electric vehicle (EV) sector, contributing to India’s transition to clean energy and driving significant job creation.
• Supply Risk (SR): This looks at how concentrated the production of a mineral is and the geopolitical risks associated with it. For example, rare earth elements (REE), which are crucial for defense and high-tech industries, are largely processed in China, making their supply vulnerable to geopolitical tensions. India’s high reliance on imports of these elements places it at significant risk of supply disruptions.

Critical Minerals Identified in India

• Thirty Minerals Listed as Critical Minerals for India. 

Importance of Critical Minerals for India

• Economic Development: Critical minerals are pivotal for high-tech industries like electronics, telecommunications, transport, and defense, fostering job creation, income generation, and innovation. 
• • For instance, India’s push to become a semiconductor manufacturing hub depends on access to rare earth elements like gallium and germanium, which are used in the production of high-end electronics. In fact, India’s semiconductor market, valued at approximately $24 billion in 2020, is expected to grow to $63 billion by 2026. This growth is only possible with a reliable supply of these minerals.
• Energy Transition: The transition to a net-zero emissions economy requires significant investment in renewable energy technologies such as solar panels, wind turbines, and electric vehicle batteries, all of which depend on critical minerals like lithium, nickel, and graphite. For example, India’s commitment to electric vehicles (EVs) hinges on securing lithium, as the mineral is essential for the production of lithium-ion batteries. By 2030, India aims to have 30% of its vehicles running on electricity, which requires vast quantities of lithium—a mineral India is currently entirely dependent on imports for. 
• Competitive Value Chain: With the identification of critical minerals and the establishment of mining projects, India can build a competitive value chain, benefiting sectors like telecommunications and defense. 
  • For instance, copper is crucial for high-tech electronics, and India’s push to develop 5G technology will require substantial quantities of copper, a critical component in telecom infrastructure. India’s potential to develop this value chain could attract foreign investments, particularly from countries pursuing the China+1 strategy, which encourages diversification from Chinese supply chains. 
  • India has also become the newest partner in the US led Mineral Security Partnership (MSP) to bolster critical mineral supply chains. 
  • The partnership aims to accelerate the development of diverse and sustainable critical mineral supply chains. 
• National Security: These minerals are vital for developing high-quality materials for defense, aerospace, nuclear, and space sectors, thereby bolstering national security. 
  • For example: The development of the Light Combat Aircraft (LCA) Tejas, which uses critical minerals like titanium and cobalt, highlights the importance of these resources for defense applications.
• Reducing Import Bill: Increasing domestic production of critical minerals can reduce dependency on imports, thus lowering the import burden and current account deficit. 
  • Between the financial years 2022 (FY22) and FY23, there has been a jump of 34% in imports of critical minerals in India including Glauconite, Nickel, Platinum Group Elements (PGE), Potash, Graphite, Molybdenum (Ore), Phosphorite (Phosphate), Lithium, Titanium, and Rare Earth Elements (REE).
  • By increasing domestic production and recycling capabilities, India can reduce its current account deficit and lessen its dependence on foreign imports, especially from mineral-rich regions like China and Africa. 
  • The discovery of lithium reserves in Karnataka and Rajasthan can potentially reduce India’s reliance on lithium imports for battery production in electric vehicles (EVs).

• Employment Generation: The mining sector is labor-intensive, with high potential for job creation. In FY19, the sector employed around 480,000 individuals daily, with 78 per cent of these jobs in the public sector. Currently, it is estimated that 580,000 to 600,000 people are employed daily in mining activities. A 10 % increase in mineral production, in value terms, could generate an additional 50,000 to 70,000 daily jobs, significantly boosting employment in the sector.
• Global Competitiveness: Strengthening the supply chain of critical minerals can enhance India’s global competitiveness in manufacturing and technology sectors. 
  • For instance, under India’s leadership, for the first time, the G20 discussed and agreed to strengthen the global critical mineral value chain.
  • India also partnered with Australia, through the India-Australia Comprehensive Economic Cooperation Agreement (CECA) in 2022, to collaborate on upstream critical mineral technologies. More recently, Khanij Bidesh India Ltd (KABIL) has signed a US$24 million lithium exploration and mining pact for 5 lithium blocks with Argentina.
• Innovation and R&D: Investment in research and development (R&D) for efficient extraction and processing of critical minerals can drive innovation. 
  • For instance, The Australia-India Critical Minerals Research Hub will foster collaborative research activities between researchers and industry leaders from both India and Australia, focusing on critical aspects of mineral exploration, extraction, processing and recycling.

Challenges with Critical Minerals in India

• Geopolitical Monopoly: Few countries dominate the supply of critical minerals, leading to oligopolistic markets. For instance, Australia controls 55% of lithium reserves, and China has 60% of rare earths.
  • India’s reliance on China for rare earth elements (REEs), which are crucial for electronics and renewable energy technologies, illustrates the vulnerability due to geopolitical monopoly.
• China’s Dominance: China is a major player in the global supply chains of critical minerals, especially in processing and refining, accounting for about 60% of worldwide production and 85% of processing capacity. 
  • India’s dependence on Chinese imports for lithium-ion batteries and other electronic components highlights the impact of China’s dominance on Indian industries.
• Geopolitical Risks: Concentration in specific regions makes the supply vulnerable to geopolitical tensions and conflicts. 
  • For example, the civil war in the Democratic Republic of the Congo impacts the global supply of cobalt. 
  • The ongoing conflict in Myanmar, a key supplier of rare earth minerals, has disrupted supply chains and affected Indian industries relying on these imports.
• Resource Nationalism: The geographical concentration has led to resource conflicts and increased nationalism, affecting trade. 
  • For instance, resource nationalism is rising in Africa. The geographical concentration of critical minerals in Africa, such as cobalt in the Democratic Republic of the Congo, platinum in South Africa, and bauxite in Guinea, has led to increased control and regulatory measures by local governments.
  • India’s restrictions on the export of certain minerals, such as bauxite and iron ore, aim to ensure domestic availability but can also lead to international trade tensions.
• Price Volatility: Critical minerals like lithium and nickel are prone to significant price volatility. Unlike oil, which is traded on global exchanges, these minerals lack standardized global trading systems, making their prices unpredictable. F
  • or instance, lithium prices surged by 400% in 2021 due to increased demand for EVs, leading to significant cost increases for Indian manufacturers.
• Environmental Concerns: Mining activities can cause biodiversity loss, water depletion, and pollution. 
  • For example, Lithium mining in Chile’s Atacama Desert is water-intensive, consuming large amounts of water in a region already facing water scarcity, which can lead to conflicts over water resources and impact local ecosystems.
  • In India, mining activities in states like Odisha and Jharkhand have led to deforestation, water pollution, and displacement of local communities, highlighting the environmental costs associated with mineral extraction.
• Long Gestation Period for Alternatives: Developing alternative sources and processing capabilities can take over 15 years, delaying self-reliance. 
  • India’s initiatives to develop domestic lithium processing and refining capacities, including collaborations with countries like Australia, are long-term projects that may take over a decade to become fully operational.

Government Initiatives for Critical Minerals in India

• MMDR Amendment Act, 2023: Allows the Central Government to auction blocks of 30 critical minerals, including lithium, cobalt, and rare earth elements (REEs), and permits private sector entry through auctions.
• FDI Liberalisation: 100% foreign direct investment allowed in the mining of certain reclassified minerals such as lithium, cobalt, and nickel.
• International Collaboration: India joined the Mineral Security Partnership, a US-led initiative, and is collaborating with countries like Argentina and Australia for lithium and cobalt exploration. Additionally, India is part of the Indo-Pacific Economic Framework (IPEF) to secure supply chains for critical minerals like REEs and graphite.
• Institutional Initiatives: The Geological Survey of India has initiated over 250 projects to explore critical minerals such as beryllium, tungsten, and zirconium, and India has launched startup challenges for developing advanced processing technologies.
• Budgetary Support 2024: Customs duties on 25 critical minerals, including lithium, nickel, copper, and cobalt, have been removed, and the concessional customs duty on lithium-ion cells extended until March 2026.
• Critical Mineral Mission: The Critical Mineral Mission launched as part of Budget 2024-25 aims to reduce India’s dependency on imports and enhance its mineral security. The mission will focus on:
  • Promoting Domestic Production: By enhancing the refining and processing capacities, India will reduce its reliance on imports and ensure a steady supply of critical minerals.
  • Securing Mineral Assets: The government plans to secure strategic mineral resources, both domestically and internationally, to meet India’s growing demands.
  • Expedited Exploration: The mission focuses on accelerating exploration and recycling critical minerals to maximize their use and minimize waste.
  • Research and Innovation: The mission will prioritize research into alternative minerals, substitute materials, and sustainable mining practices to reduce environmental impacts and increase resource efficiency.

• Mines and Minerals (Development and Regulation). Amendment Act, 2023:  The Central Govt  has also passed this Act  through which it can award exploration licences for 30 deep-seated and critical minerals — including antimony, beryllium, bismuth, cadmium, gallium, germanium, graphite, hafnium, indium, lithium, molybdenum, niobium, and others.
• National Mineral Policy 2019: This policy emphasizes the exploration and development of critical minerals, such as rare earth elements and graphite, to reduce import dependency and enhance domestic supply.
• Production-Linked Incentive (PLI) Scheme: Aimed at boosting domestic manufacturing of high-tech products, which includes incentives for sectors reliant on critical minerals, such as lithium, cobalt, and nickel for electronics and electric vehicles.
• Khanij Bidesh India Limited (KABIL): A joint venture between three public sector enterprises to ensure a consistent supply of critical minerals like lithium and cobalt by exploring and acquiring mineral assets abroad.
• Strategic Mineral Reserves: Establishment of strategic mineral reserves for minerals such as lithium, cobalt, and REEs to ensure long-term availability.
• Exploration of Deep-Seated Minerals: The government has initiated projects to explore deep-seated minerals that are crucial for advanced technologies, including rare earth elements and tungsten.
• Collaboration with Japan and South Korea: India has signed agreements with Japan and South Korea for the exploration and development of critical minerals such as rare earth elements and lithium, ensuring a diversified and secure supply chain.
• Partnership with Canada: India is exploring partnerships with Canada for the supply of critical minerals, including cobalt and nickel, leveraging Canada’s rich mineral resources.
• African Outreach: India is enhancing its engagement with African nations rich in critical minerals such as cobalt, platinum, and manganese, aiming for mutual benefits in terms of investment and resource development.

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Way Forward

• Implement Expert Recommendations: Establish the Centre of Excellence for Critical Minerals (CECM) in the Ministry of Mines, collaborating with international agencies for strategic mineral acquisition.
• Expand Mineral Security Partnership (MSP): Include more countries, especially critical mineral-rich African nations, to report on the status and future of critical mineral markets.
• Encourage FDI in Domestic Mining: Boost FDI to support businesses and bring international mining expertise to aid in exploring critical minerals.
• Invest in Beneficiation and Processing: Develop facilities in Africa to promote local economies and sustainable relationships.
• Path to Global Leadership: Emulate Indonesia’s success in nickel to become a global leader in critical minerals.
• Align Mineral Incentives: Ensure that the production-linked incentive scheme for minerals aligns with global aspirations and creates employment opportunities.