Charging growth

India must increase its presence in critical minerals

The Union government recently initiated the process of auctioning 20 blocks of critical minerals, including the 5.9 million tonnes of lithium reserves discovered in Jammu & Kashmir’s Reasi district. The collective valuation of these blocks has been estimated at about Rs 45,000 crore. Currently, 125 projects are underway to explore critical minerals in the country. Notably, this comes just a few months after India was inducted into the US-led Mineral Security Partnership (MSP), and the country issued its first critical minerals policy listing 30 minerals vital in fuelling India’s net-zero transition.

Clean-energy technologies necessitate significantly higher mineral inputs than their fossil fuel-based counterparts. For instance, lithium-ion batteries are extensively used in electric vehicles, while rare earth elements are essential components of wind turbines. A surge in their demand implies that, in going green, India will have to shift dependence from supplies of oil and gas to somewhat insecure supplies of critical materials, such as lithium, graphite, potash, silicon, and titanium. Scaling clean energy deployment will require a significant increase in mineral extraction and processing, but concerns remain regarding the scarce supply of minerals and China’s dominance in global critical mineral supply chains, particularly in processing and refining. China accounts for approximately 60 per cent of worldwide production and 85 per cent of processing capacity. The country, for instance, currently accounts for 100 per cent of the refined supply of natural graphite and dysprosium, and almost 60 per cent of lithium and manganese. Further, the mining and processing landscape of critical materials is geographically concentrated, making it vulnerable to geopolitical risks.

In the past decade or so, Chinese firms started looking toward markets across Africa and South America for sourcing raw minerals. Approximately 70 per cent of the world’s reserves of cobalt lie in the Democratic Republic of the Congo. Of the 19 cobalt-producing mines in the region, Chinese firms own or have stakes in 15. Other problems include the dominance of a few major companies in this sector, yielding small and often oligopolistic markets. Moreover, unlike oil, most critical materials are not widely traded on exchanges, and this limits opportunities to hedge against price volatility. Insufficient data on the consumption, production, and trade of minerals is yet another issue causing uncertainty and price volatility, and delaying investments to meet growing demand.

If India has to have a shot in this space and expand its footprint in the critical minerals sector, it needs to catch up fast. While India became the first developing country to join the MSP, more countries in the Global South can be part of the alliance, especially resource-rich African countries that have high stakes in ensuring global critical mineral security. The MSP has the potential to evolve as an international platform that could present and update the status of and outlook for critical minerals market regularly. Domestically, while 100 per cent foreign direct investment (FDI) is allowed in the mining and exploration sector through the automatic route, the activity remains muted. An increase in FDI will not only help firms in businesses such as batteries and electric vehicles but the country will benefit from the expertise of global mining companies in the exploration of critical minerals.