India's critical minerals: EV boom ahead, but policy gaps persist

The Centre has also extended the concessional Customs duty of 5 per cent on Li-ion cells until March 2026

To position India as a key manufacturing hub for advanced technologies like electric vehicles (EVs) and energy storage systems, Finance Minister Nirmala Sitharaman on Tuesday removed the Customs duty on 25 critical minerals, including lithium, nickel, copper, and cobalt.

The Centre has also extended the concessional Customs duty of 5 per cent on Li-ion (lithium-ion) cells until March 2026 and launched the Critical Mineral Mission (CMM) for domestic production and recycling of critical minerals.

Although industry executives believe that the relaxation of import terms and CMM are poised to bolster the government’s Make in India initiative, they think the benefits will only be realised in the long term. They also say that the Budget missed providing short-term relief to the industry.

“While the Customs duty exemption on lithium is a welcome move, some announcements on incentives to boost the EV ecosystem in the country and bolster higher EV adoption would have been appreciated,” Jayadev Galla, chairman and managing director of Amara Raja Energy & Mobility, said in a post on X.

While the government’s move is expected to reduce vehicle costs in the long term, sector experts believe it will have minimal impact in the short term.

“In the short run, since the industry is importing cells, removing the duty on raw materials alone won’t benefit the sector without a domestic processing industry. To fully leverage the government’s initiative, the industry needs to develop its critical mineral processing and refining capabilities under CMM,” said Preetesh Singh, a specialist in CASE and alternate powertrains at Nomura Research Institute Consulting & Solutions India.

The industry missed the much-anticipated Faster Adoption and Manufacturing of EVs (FAME) scheme in the Budget and has called for policy consistency to align with the government’s vision for the sector.

“We expected announcements on the FAME-III policy and special incentives for the EV sector, which weren’t part of this Budget. Maintaining policy consistency will be essential to the overall expansion of the EV market. We expect that the government will provide clarification and lower or eliminate taxes on last-mile delivery services before the current programme expires this month,” said Rashi Agarwal, co-founder and chief business officer of Zypp Electric.

The government move aligns with the Centre’s aim to initiate critical mineral mining in the country. The Ministry of Mines has so far auctioned four rounds of critical mineral blocks, totalling more than 50 blocks.

Despite these initiatives, mining companies have remained cautious and refrained from participating due to the lack of a processing and refining industry in the country.

A total of 28 blocks of the 38 announced in the first two auctions were annulled by the Centre due to a lack of interest from potential bidders.

“The announcement of a CMM for India will encourage private and government companies to develop capabilities in the critical minerals supply chain and build competitiveness in the medium to long term,” said Rishabh Jain, senior programme lead, CEEW (Council on Energy, Environment and Water).

Critical minerals such as lithium, chromium, nickel, graphite, cobalt, titanium, and rare earth elements are essential raw materials for sectors like electronics, EV, renewable energy, defence, and high-tech telecommunications.

The growth in EV sales is pushing up demand for batteries, continuing the upward trend of recent years.

According to the International Energy Agency’s (IEA’s) Global EV Outlook 2024, the demand for EV batteries reached more than 750 gigawatt-hours in 2023, up 40 per cent relative to 2022.

In 2023, battery demand for lithium was about 140 kilotonne (kt), 85 per cent of total lithium demand and over 30 per cent higher than in 2022.

Cobalt demand for batteries rose 15 per cent to 150 kt, representing 70 per cent of total cobalt demand.

Battery demand for nickel reached nearly 370 kt, accounting for over 10 per cent of total nickel demand and up almost 30 per cent from 2022, an IEA report shows.

Currently, India is dependent on imports of all these minerals.

For instance, India meets its entire lithium demand through imports. In 2022-23, India’s lithium imports amounted to roughly $3 billion (approximately Rs 24,900 crore), marking a 58 per cent increase from 2021-22, according to data from the Ministry of Commerce and Industry.

The data also reveals that over 95 per cent of India’s lithium imports originate from China and Hong Kong. Around 90 per cent of the lithium imported by India comes in the form of Li-ion cells, which attract a 5 per cent duty.

According to the ICRA report released in May 2024, China dominates the processing and refining of critical minerals, controlling between 65 per cent and 100 per cent of the global capacity to make battery-grade lithium, cobalt, manganese, and graphite.