Mapping India’s Response towards the Rare Earths Imbroglio

With the geopolitical rivalry between the USA and China assuming a permanent feature of the global economic landscape, the global supply chains that have played a pivotal role in ensuring India’s rise on the world stage can no longer be taken for granted. The Rare Earth Elements (REEs), which are poised to become a prime mover in the post-pandemic economic subsystem as finding their use from advanced ballistic missiles to several quintessential consumer electronic goods are already contributing nearly $200 billion to the Indian economy. These REEs are also critical in rolling out several promising e-technological solutions geared towards the future like renewable energy initiatives and electric vehicles. However, a potentially unsettling fact in this regard is China’s domineering control of nearly 90 percent of global rare earth production, which poses a real threat to a plethora of manufacturing sectors in the process necessitating a global response. It is in this context that we can see China’s geopolitical and geo-economic rivals like the USA and Australia announcing new investments and partnerships concerning these critical REEs every now and then.

Keeping in mind such an ongoing contest, India may find itself in a lucrative position. However, despite accounting for the world’s fifth largest reserve of these quintessential REEs, which conspicuously is nearly twice as much as Australia’s reserves India quite glaringly is found to import most of its rare earths requirements in a finished form from its geopolitical rival China. With some major structural adjustments to its existing policy on REEs, India harbors the untapped potential of emerging as a conduit in rare earths to the world at large alongside contributing to the needs of a homegrown 21st century oriented high-tech manufacturing economy. Ironically, the possession of a substantial quantity of these critical minerals is not a guarantee that a country would be capable of exploiting them in right earnest. For the mining and extraction related activities as accounting for the same is a very much capital intensive process, whilst consuming a hefty amount of energy and in the ultimate extent leading to the release of certain noxious by-products. These processed minerals however take on the form of a Rare Earth Oxide (REO) and are in need of further conversion into a pure metal so as to be of any use in several myriad manufacturing activities.

These considerable obstacles were a reason for much policy churning in India as concerning these REEs previously as well. There are several government corporations like the Indian Rare Earths Limited (IREL), which enjoy a monopoly over the primary mineral which contains these REEs that is monazite beach sand which is found in various coastal states. It is very much appalling to note that while the IREL engages itself in the production of rare earth oxides, which in common economic parlance is considered to be low cost and low reward emanating ‘upstream processes’ it sells these to foreign firms which engage themselves in the extraction of these metals whilst manufacturing end products as well. The latter thus are involved in various high cost and high reward emanating ‘downstream processes’, with the IREL’s primary focus being the supply of thorium as extracted from monazite to the Department of Atomic Energy. Thus, the REE production in India is being augmented under the governmental purview alone with a miniscule incentive to cater to global markets in general. It is thus not quite unsurprising to note that India contributes to only a tiny fraction of world production in general, leaving many domestic manufacturers and exporters with a negligible value that forces them to import a plethora of finished REE derivatives from China.

However, amidst all this pale and gloom some prospective reforms and emergent solutions do galore. Taking note of the fact that the need of the hour is to substantially scale up the upstream and downstream processes which form an intricate part of the rare earths value chain, being solely dependent on public sector organizations like the IREL while pumping in government financing is a move in the wrong direction. India thus needs to open up its rare earths sector in a substantial manner so as to foster competition whilst guaranteeing innovation.  In the process, India should strive to garner a huge glut of capital so to say in order to set up state of the art manufacturing facilities having the inherent capability to compete with alongside ensuring supply to the world at large. According to some commentators, the most feasible option in this regard would be the creation of a new Department of Rare Earths (DRE), which would work under the ambit of the Ministry of Petroleum and Natural Gas thereby streamlining the process of exploration, exploitation, refining and regulation of the REEs while drawing upon the resources of the latter.

A prospective DRE should also focus upon formulating appropriate policy frameworks to garner investment alongside augmenting R&D, with its quintessential focus being the extension of approval to the burgeoning private sector to process the myriad beach sand minerals while paying strict adherence towards ensuring environmental safeguards in this regard. In the long run, some thought should be extended towards the establishment of an autonomous regulator or the Rare Earths Regulatory Authority of India (RERAI), for the purposes of resolving key disputes between companies engaged in this sector alongside the added responsibility of ensuring due compliance. To harp upon the low cost and low returns centric upstream sector whilst making the Indian REOs globally competitive, the DRE could strive to secure an essential access to REEs of strategic importance and may extend support to various interested enterprises to begin operations in this sector by harping upon the aspect of ‘viability gap funding’.  An essential focus on augmenting port infrastructure with accompanying advances in the ease of doing business measures may allow several prospective Indian manufacturers to import REOs from various ‘whitelisted’ producers as situated globally. Such an initiative would help in the augmentation of various high cost and high returns centric downstream processes, whilst ultimately aiding the production of appliances like manufacturing magnets and batteries.

In conclusion, we can say that the DRE may hold itself to the prospect of synergizing with several other coordinating agencies with an essential aim towards partnering directly with such regional groupings like the Quad, in the process building up a key strategic reserve which in the long run may act as a buffer against the unraveling of the global supply chains. There is a sense of heightened exuberance if one notes that a 2016 estimate has placed the Indian REE industry to contribute to the tune of Rs. 1,21,000 crore towards augmenting capital employment and Rs. 50,000 crore towards ensuring a seamless foreign exchange flow. The other Quad members that are the US, Japan and Australia are coming up with a huge gamut of collaborations in this sector, whilst pumping in a substantial amount of investment. On the other hand India’s strained relationship with China provides little guarantee as to the fact that the bane of coercive economic actions may not be directed against the former in the coming decades. In its euphoria to catch the high train of globalization even before the onset of this new millennium, India had quite painstakingly lost sight of a coveted global wave in industrial manufacturing. However, its rare earth reserves as present amidst the ravages wrought about by a post-pandemic led economic precarity places a substantial opportunity in front of India to ride over the next wave as geared towards high-tech manufacturing in particular. It must not lose sight of this opportunity yet again. 

Debayan Ghatak 

Intern, AGA

References

• Anirudh Kanisetti, “Here’s how India can end Chinese dominance in rare earths”, Business Insider India, February 13, 2021, https://www.businessinsider.in/policy/economy/news/heres-how-india-can-end-chinese-dominance-in-rare-earths/articleshow/80883001.cms

• Sam Sachdeva, “Why rare earths are a Five Eyes hot topic”, Stuff, March 11, 2021, https://www.stuff.co.nz/national/politics/300249793/why-rare-earths-are-a-five-eyes-hot-topic