Critical Mineral Supply Chains: Challenges for India

Executive Summary

The global push towards a net-zero future by 2050 hinges on a successful transition to clean energy technologies. This transition requires a significant increase in the production and deployment of solar photovoltaic (PV) systems, wind turbines, electric vehicles (EVs), and Battery Energy Storage Systems (BESS). All of these technologies rely heavily on a range of raw materials known as critical minerals.

India has set ambitious targets for installing renewable energy capacity and EV adoption, but currently faces significant import dependency for many requisite critical minerals. Ensuring a resilient and sustainable supply of critical minerals is a complex challenge with significant geopolitical and economic implications.

This paper aims to:

• Analyse the structure and dynamics of global critical mineral supply chains.
• Identify the key bottlenecks and challenges in these supply chains, particularly concerning extraction, processing, and manufacturing.
• Evaluate the specific challenges faced by India in accessing critical minerals.
• Recommend policy interventions and strategic options for India to secure its critical mineral needs for a successful clean energy transition.

Methodology

This paper employs a combination of approaches to address its research objectives. It draws on a comprehensive review of existing literature, reports, and data from international organisations (e.g., International Energy Agency, World Trade Organization), government agencies, and industry sources:

• Case Studies: The paper analyses specific examples of mining projects, off-take agreements, and government policies to illustrate key trends and challenges in critical mineral supply chains.
• Comparative Analysis: The research compares global trends in critical mineral supply chains with the specific context and challenges faced by India.
• Policy Analysis: The paper evaluates existing and potential policy interventions aimed at strengthening India’s critical mineral security.

Key Findings and Analysis

Global Mineral Supply Chain Dynamics:

• Growing Demand and Market Concentration: The demand for critical minerals has surged in recent years due to the growing demand for clean energy technologies. Global production and processing of key minerals are concentrated in a few countries, with China being the dominant player. This concentration creates significant supply risks for countries reliant on imports.
• Foreign Ownership and Control: Foreign companies, particularly those from China, have increased their ownership of mining assets in major mineral-producing jurisdictions. This trend has raised concerns about resource nationalism and the need for countries to regulate foreign investment to ensure equitable benefits from their mineral wealth.
• Off-take Agreements and Supply Security: Long-term off-take agreements between mining companies and manufacturers have become increasingly common. These agreements can offer financing for mining projects and ensure supply security for manufacturers. However, they can also limit the availability of minerals for other buyers and contribute to price volatility.
• Vertical Integration: Original Equipment Manufacturers (OEMs) in the EV and renewable energy sectors are increasingly pursuing vertical integration strategies, investing in mining and processing operations to secure long-term access to critical minerals. This trend can further concentrate control over supply chains and potentially create barriers to entry for new players.
• Sustainability Concerns: The growing demand for critical minerals raises important concerns about the environmental and social impacts of mining and processing. There is a growing need for responsible sourcing practices, improved Environmental, Social, and Governance (ESG) standards, and a circular economy approach to minimise the negative impacts of mineral extraction and use.

Critical Mineral Supply Chain Challenges in India:

• High Import Dependence: India is highly reliant on imports of several critical minerals essential for green technologies, including cobalt, lithium, nickel, neodymium, and processed silicon.
• Limited Domestic Extraction: While India possesses significant mineral resources, its domestic extraction capabilities are currently limited due to:
  • Inefficient allocation of mineral resources and weak regulatory frameworks, including the Mines and Minerals (Development and Regulation) Act (MMDR) of 1957.
  • A lack of private sector participation in mineral exploration and mining owing to insufficient incentives under the auction-based allocation system.
  • Limited technical expertise and financial resources for developing deep-seated mineral deposits.
• Inadequate Processing Capacity: India’s processing capacity for critical minerals is significantly underdeveloped, leading to a reliance on imports of refined minerals and components. Challenges include:
  • Limited scale of operations and a lack of investment in advanced processing technologies.
  • Difficulties in procuring raw materials, both domestically and internationally.
  • Low domestic demand for processed minerals, which can disincentivise investment in processing facilities.
• Government Incentives and their Limitations: While the Indian government has implemented incentive schemes like the Production-Linked Incentive (PLI) to promote domestic manufacturing of clean energy technologies, these schemes have limitations:
  • They primarily focus on end-product manufacturing and do not adequately address upstream mineral extraction and processing.
  • They have encouraged the assembly of imported components rather than genuine domestic value addition.
  • They may create a reliance on subsidies and protectionist measures that could hinder long-term competitiveness.

Policy Implications and Recommendations

India must ensure a sustainable and resilient supply of critical minerals as a vital prerequisite to achieving its clean energy transition goals. The challenges are significant, but with a strategic and proactive approach, India can leverage its domestic resources, global partnerships, and technological innovations to emerge as one of the key players in the global critical minerals landscape.

The paper proposes a multi-pronged strategy for India to address the identified challenges:

• Strengthening Domestic Critical Mineral Production:
  • Reforms to the MMDR Act: Amending the Act to streamline the process of granting Mining Leases (MLs), encouraging private sector participation in exploration, and creating a more investor-friendly environment.
  • Revision of the Auction System: Exploring alternative allocation mechanisms to attract more private investment, such as granting exploration companies the right to mine the minerals they discover.
  • Investing in Exploration and Technology: Increase public and private investment in geological surveys, exploration technologies, and research and development to identify and develop new mineral deposits.
• Developing Domestic Processing Capabilities:
  • Attracting Investment: Provide financial incentives, tax breaks, and other policy support to encourage private and public sector companies to invest in processing facilities.
  • Promoting Technological Innovation: Supporting research and development of advanced and sustainable processing technologies.
  • Facilitating Raw Material Procurement: Increasing access to raw materials for domestic processors, both domestically and internationally, through off-take agreements, strategic partnerships, and other mechanisms.
• Enhancing Manufacturing Competitiveness:
  • Focus on the Entire Value Chain: Extending incentive schemes like the PLI to encompass all stages of the critical mineral value chain, including mining, processing, and manufacturing of components.
  • Enhancing Vertical Integration: Encouraging domestic OEMs to pursue vertical integration strategies, potentially through joint ventures with mining and processing companies.
  • Support Circular Economy Initiatives: Promote recycling, reuse, and recovery of critical minerals from end-of-life products to reduce import dependence and environmental impact.
• Need for Global Cooperation:
  • Strategic Partnerships: Strengthening bilateral and multilateral partnerships with mineral-rich countries and other key stakeholders to secure access to critical mineral supplies.
  • Mineral Security Partnership (MSP): Actively engage in the MSP and other international initiatives to promote responsible sourcing, supply chain diversification, and technology collaboration.
  • Regional Cooperation: Explore opportunities for mineral cooperation with regional partners like the Quad and Association of Southeast Asian Nations (ASEAN).
• Develop a Comprehensive Critical Minerals Strategy (CMS):
  • Need for Regular Assessment: Conduct periodic detailed assessments of India’s critical mineral needs across various sectors, considering future demand projections and supply chain vulnerabilities.
  • Policy Framework: Develop a comprehensive national strategy for critical minerals, outlining clear policy objectives, targets, and implementation mechanisms.
  • Monitoring and Evaluation: The progress of policy interventions must be monitored and evaluated cautiously to identify challenges and make necessary mid-course adjustments.