A fresh push for securing supplies of critical minerals will be crucial to power its manufacturing and deep-tech ambitions. Maintaining momentum will be essential.

Bharat is approaching an economic inflection point, where exponential increase in income can be expected.^[1] Economic progress forms the bedrock of Indian comprehensive national power, whereby the economy fuels technological capabilities and vice versa. ^[2] Thus, sustained scientific and technological innovation is indispensable to maintaining robust economic growth.^[3] No major economy has managed to consistently prosper without making extensive strides in science and technology, particularly since the changes wrought by the industrial revolution. ^[4] Therefore, the basis for further economic growth, job creation, and international strategic competition will increasingly rest on Bharat’s scientific and technological capabilities. Low cost and disruptive technologies, such as UPI, will play an outsized role in India circumventing constraints and leapfrogging through impediments.^[5] Domestic mining and processing of critical minerals will be vital in accelerating India’s technological (and thus, economic) advancement, while plugging a severe vulnerability in the country’s supply chains. The Mines and Minerals (Development and Regulation) Amendment Act, 2023 may be the beginnings of a regulatory reorientation which advances strategic imperatives by incentivising private sector involvement in critical supply chains.

As technological complexities increase, securing the supply chains which make such technologies possible is a strategic and economic imperative. Amongst these supply chains are critical minerals, without which modern technology itself will be impossible. Ranging from jet engines to semiconductor chips and permanent magnets, critical minerals are inescapable. ^[6] Unsurprisingly, the direction in which modern technology has been progressing demands aggressively increasing consumption of critical minerals. ^[7] Critical minerals, thus, are inescapable in powering Bharat’s next leg of growth, which will invariably be technology-led and critical mineral intensive.

Critical metals generally refer to minerals which are by and large indispensable for economic and military uses, and have some supply chain constraint or vulnerability. The dual indices of criticality are: (i) possibility of disruption from foreign political risk, abrupt demand growth, military conflict, violent unrest, anti-competitive or protectionist behaviour and; (ii) having an essential function in the manufacturing of a product for energy technology, defence, currency, agriculture, consumer electronics or health care-related applications. ^[8] Critical minerals include commonly known industrial metals such as iron, copper, tin and aluminium, as also less well-known elements such as cerium and manganese. Strategic minerals are a specific subset of critical minerals which have particular importance in wartime, defence preparedness, and for the maintenance of critical infrastructure. Titanium, dysprosium, neodymium, erbium, and uranium belong to this category.

Three Challenges

Controlling the supply chains of these critical minerals has rapidly emerged as an important agenda for global powers. The former Vice Minister of China’s Ministry of Land and Resources termed rare earth minerals, a very important subset of critical minerals consisting of 17 elements which have no substitutes in electronics and other essential uses, as the “vitamins” of the fourth industrial revolution. ^[9] Likewise, the United States’ Department of Defence has granted extensive funding to restart the mining and separation of rare earths domestically. ^[10] In this global quest for gaining access to critical minerals, Bharat has faced principally three challenges.

China’s Monopoly

The very first challenge, which is of an external nature and a worldwide challenge, is the monopolistic position of China in many of the critical minerals’ supply chains. The problem is most acute for many of the rare earths, where China processes around 85% of the world’s rare earths supply into usable forms, and makes an overwhelming 92% of finished components. ^[11] For materials such as dysprosium, without which permanent magnets that make everything from headphones to fighter jets work, Chinese market dominance is as high as 99%.^[12] The problem is not limited only to rare earths - 77% of refining for cobalt is done in China, and cobalt is essential for electric vehicle batteries amongst other uses. ^[13] This particular problem achieves strategic salience when one considers two particular facts. Firstly, China has successfully weaponised its monopoly over critical minerals to throttle industrial access to critical minerals as an instrument of statecraft - a threat it actualised against Japan in 2010 and 2011. ^[14] Secondly, ready access to the critical minerals’ full-spectrum scientific ecosystem gives China a massive economic and innovative lead on futuristic technologies such as clean energy. The G20, in 2023, has recognised the Chinese monopoly as an obstacle, ^[15] and fora such as the Minerals Security Partnership are attempting to set up an alternative global supply chain architecture for critical minerals. ^[16]

Policy Errors

The second challenge is borne out of a continuation of policy errors made by India. The Atomic Energy Act, 1962, classified mineral-rich thorium bearing beach sands as “prescribed substances”, owing to India’s longstanding program to use thorium as a nuclear fuel. A PSU by the name of IREL (India) Limited (IREL) was granted monopoly over the same. However, the same sands are also the richest source of rare earth minerals, and titanium. IREL, having a mandate mostly limited to thorium production, has continued to neglect rare earths despite India having ready access to ores. ^[17] In this context, it is to be noted that thorium is, scientifically speaking, not a rare earth. IREL’s facilities remain miniscule in their output quantities compared to domestic requirements, and the bulk of its production are refined ores which are exported away for countries like China to make high-value added products. ^[18] Until recently, owing to the Atomic Mineral Concession Rules, 2016 flowing from the amendments made to the Mines and Minerals (Development and Regulation) Act, 1957 in 2015, even minerals such as lithium (essential for EV batteries) were made the exclusive preserve of India’s atomic agencies, resulting in a regulatory constriction over the economic extraction of minerals and their subsequent use by Bhartiya industry. Thus, even though Bharat possesses one of the world’s largest rare earths reserves, ^[19] they remain mostly unutilised with India’s supply chains being left vulnerable.

Insufficient Exploration

The third challenge pertains to an inadequate incentive structure for mineral exploration. The country’s geography is greatly underexplored, with the stress historically on minerals such as iron and coal. The mineral exploration process is a high-cost, high-risk activity without which mining of deep-seated minerals cannot be undertaken at necessary scale. However, the legal framework of exploration in India is geared towards the maximisation of government revenue through competitive auctions, which cause a severe stress on the viability of exploration as a business. Similarly, the area over which exploration can be carried out is limited, and explorers cannot directly sell their finds to interested parties. ^[20] The Geological Survey of India, Mineral Exploration and Consultancy Limited, and the Atomic Minerals Directorate cannot do justice to the sheer size of the country, and private explorers are essential for finding usable reserves.

A Sunrise Amendment for Sunrise Sectors

The Mines and Minerals (Development and Regulation) Amendment Act, 2023 (hereinafter for convenience referred to as the Amendment) attempts to chart a new course with regards to the second and third challenges listed above, and which will ultimately improve India’s ability to deal with the first challenge through increased competitiveness. Following the passage of the Amendment, the central government has undertaken the auction process for a first tranche of the recently notified “strategic and critical” minerals, ^[21] and has rapidly followed it up with an offering of a second tranche following encouraging response from industry. ^[22] Such a move and the Amendment itself may lead to virtuous feedback loops across all aspects of Bharat’s economy, particularly with regards to future-facing technological manufacturing. ^[23] These range from improved prospects for high-end technological manufacturing to economic advantages in sunrise sectors such as electric vehicles, the development and competitiveness of which are predicated on access to critical mineral products. ^[24] The fact that the second tranche has elicited responses not only from miners, but even electric mobility manufacturers, buttresses the importance of critical minerals to high-technology manufacturing. ^[25]

The Amendment has introduced a new schedule of “critical minerals” under the MMDR Act. ^[26] Such an action is approximately analogous to the inclusion of the same term, critical minerals, in the United States’ Energy Act, 2020 read with the Final Critical Minerals List, 2023. ^[27] The Amendment permits the Central government to exclusively auction mining leases and composite licences for notified critical minerals (which range from rare earths, without which modern electronics cannot be conceived of, to fertiliser minerals such as potash). The move was probably necessitated by the glacial pace of auctions at the State level for minerals having national, strategic significance in terms of economic competitiveness and supply chain resilience – of the 107 blocks handed over to State governments, only 19 have been auctioned till date. ^[28] Nonetheless, States’ interests were balanced in the Amendment by allowing them to retain the right to receive statutory payments and auction premia, which is a sagacious display of cooperative federalism.

Likewise, mineral selection closely follows criticality determined through a combination of their economic indispensability and the supply chain risks underlying their provision. ^[29] Overall, rapid auctions of mining leases and composite licences for a targeted set of minerals introduce a policy lever to incentivise both the efficiency and resilience of our technological supply chains over the medium to long run. The list of minerals notified as being critical reflect a slant favouring those which are very difficult (sometimes impossible) to substitute, and for which we have very high import dependence (a full 100% for indispensable minerals like cobalt, without which most rechargeable batteries cannot work, and potash, which is a crucial input for fertilizers). ^[30] Mineral selection is also sensitive to evolving technological needs, which is reflected in the selection of minerals such as indium, which is essential for semiconductors, solar cells, LCD screens, cryogenics, optic fibres, and lighting. The world’s supply of indium is extremely limited, with a production of only about 800 tons per year, even as its use keeps increasing exponentially and its recycling remains unviable. ^[31]

Arguably the biggest change, however, is the removal of lithium, beryllium, titanium, niobium, tantalum and zirconium bearing minerals from their antiquated categorisation as atomic minerals. These metals are non-nuclear and have technologically essential uses. They were included in the list of atomic minerals in the past, simply because they tend to occur in the thorium rich monazite sands which are of strategic importance to our atomic energy program. Coming under this list, their mining and exploitation came under the Department of Atomic Energy (DAE) and IREL, which were largely uninterested in capacity building in non-nuclear minerals. Thus, a metal such as titanium, which is vital in industries ranging from sports equipment to aerospace, remains in severe short supply despite existing domestic reserves. ^[32] The de-categorisation of these six minerals as atomic minerals will foster economy-wide cost reductions, improved prospects for deep-tech innovation, and cross-sectoral synergies in the years to come.

Finally, the wide-ranging changes in the exploration regime under the MMDR Act significantly improve the incentive structure for exploration activities. The vast majority of our landmass and undersea resources remain underexplored, and the full potential of our geological bounty is yet to be even ascertained. The introduction of Exploring Licenses is in line with established international practice, where junior partners are engaged for carrying out reconnaissance and/or prospecting work. Under the MMDR Act, not only is an Exploration License granted over a sufficiently large area (1000 square kilometres), but if resources are proven during the exploration period, State governments are now bound to conduct an auction for mining leases within six months. Additionally, 100% FDI has been permitted in the sector, and if pertaining to critical minerals, a 25% incentive on the approved project cost for exploration agencies is granted. ^[33] Considering the scale of the task as well as the technical complexities involved, the involvement of private and foreign entities in the exploration for critical minerals will be vital, for which incentive structures need to appropriately factor in the risks inherent in exploration as a business.

Prospecting for Solutions: A Long Road Ahead

While the MMDR Amendment is a step in the right direction, further reforms are a sine qua non. It is still unclear as to how the private sector will get access to beach sands post-extraction of thorium by the DAE. The auctioning process still does not address the uncertain nature of finds, and what measures, if any, will be taken to integrate this element of risk in the process. Directly selling rights over discoveries arrived at exploration remains prohibited, which is a dissuasive factor for private sector engagement in exploration.

Lastly, there is an urgent need to address the supply chain as a whole to strengthen individual nodes on the same. Mining and even initial processing of ores is not a particularly value-adding activity, and unless we invest in separation and refining of these metals (particularly rare earths) to industry-grade values at scale, gains will be limited. Bhartiya industry will remain dependent on foreign imports until ores are converted into high-purity metal within the country. Therefore, the need of the hour is to think, plan, and regulate in terms of ecosystems. The author has already made detailed recommendations of what such initiatives would look like and entail in 2022, which apart from pre-empting changes in the exploration regime, inter alia suggested viability gap funding, information fusion, advance market commitments, and substitution chemistry efforts. ^[34] Additionally, leveraging existing ecosystems to bolster particular critical minerals’ supply chains may also be cardinal in combining efficiency with resilience. For example, our automotive industry could act as an anchor for the cerium supply chain network, and each point from the mine to the showroom will need varied levels of policy interventions and specific assistance until the supply chain as a whole achieves economic competitiveness. Undertaking such an investment for safeguarding the future of the Bhartiya economy requires nurturing scientific and technological ability in the field – a task with no shortcuts, considering only three countries (U.S.A., China, and Australia) have the know-how for the entire rare earth supply chain. ^[35]

While the role of industrial, chemical, mining, and exploration related policies cannot be understated, these do not operate in a vacuum. As discussed above, critical minerals are a strategic endeavour for major powers, and the line between trade and security is vanishingly thin in this regard. While India is a signatory of the Minerals Security Partnership and is aggressively undertaking foreign acquisition of critical mineral bearing mines through Khanij Bidesh India Limited^[36], the technology stack required for viable supply chains of critical minerals stretching from mines to finished products will remain available only in fragments for outright acquisition. ^[37] Thus, technology acquisition from foreign partners and foreign inflows into downstream or adjacent sectors will be welcome, how forthcoming they may actually be depends on fundamentally political equations which will be subject to constant change. In a world marked by such flux, fora such as the G20 emerges as an ideal forum to modulate global supply chain governance, owing to its composition, modality of engagement, and potential to resolve critical informational asymmetries which induce fragility. This proposed role for the G20 is not a departure but merely an extension of its already existing operation as a systemic hub for global governance, as has been postulated by the author in 2023. ^[38] Such an evolution of the G20’s role into becoming a rare earths bazaar, where countries can trade technical knowhow and control independent of blocs led by the major powers can lead to new institutional mechanisms for supply chain stability and resilience.

Securing the supply chains of India’s critical minerals is a careful trapeze between boosting manufacturing, overhauling the mining and exploration regime, attracting foreign technology and funding, and incubating a domestic technology stack. The ultimate goal is to set up efficient as well as resilient industrial ecosystems which can provide Bharat rapid economic growth and sophistication in the technologies which will come to define the future. Though the Amendment is an important step in the right direction, the path ahead is an arduous one which straddles domestic policymaking and the vicissitudes of international politics.

With special thanks to Prof. Gautam R. Desiraju, Professor Emeritus at the Indian Institute of Science, Bengaluru, for his inputs.

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