India's rare earth dilemma: Can it break free from China's grip on critical minerals?

Last week, India’s top car maker Maruti Suzuki was in news for deciding to cut its electric vehicle production targets for the near term because of the shortage of some rare earth components that are essential part of electric motors, braking systems, etc. The scarcity for these critical parts was the result of a global export curb announced by China on rare earth minerals and value-added products. China has near monopoly on the supply of these materials. It announced the export restrictions as part of an ongoing tariff, trade war the country is waging with the US, causing supply chain disruptions for Indian auto industry, and even the renewable energy sector. Indian government is trying both at the diplomatic level as well as through interactions between stakeholder industries on both sides to minimise the problems of the domestic industry. The problem is far from over.

The supply chain risks associated with a near complete dependence on China for these rare earth minerals are well known and well documented. India too has looked at it and announced a series of schemes to reduce this import dependence. Two recent reports published by The UN Trade and Development (UNCTAD) – one on ‘Changing battery chemistries and implications for critical minerals supply chains’ and the other on ‘Focus on critical minerals: copper in the new green and digital economy’ show why such attempts to reduce import dependence are so critical for India, and why self-reliance is not an easy target to achieve.

Ever Increasing Demand

UNCTAD’s report on ‘changing battery chemistry’ says that as the energy transition rapidly expands, demand for critical minerals used in battery technologies like lithium, cobalt, nickel, phosphate and graphite – along with emerging materials like sodium, zinc, sulfur, and silicon, will rise even more in the coming years. The second report on copper also says how it is becoming central to the global transitions toward renewable energy and a digitally connected economy. “Its unparalleled conductivity and versatility make it crucial for key industries such as construction, electronics, renewable energy, transportation, and defense. As demand rises—projected to increase by over 40 per cent by 2040—the global copper market faces mounting pressure from supply limitations, geopolitical uncertainties, increasing trade tensions and declining ore grades”, the report points out.

In both cases, UNCTAD says developing countries with raw materials can leverage this opportunity to spur industrial development by investing in manufacturing facilities and implementing value addition activities which will generate jobs in mining, processing and further downstream sectors, contributing to economic diversification and resilience. To meet the demand for copper, UNCTAD advocates coordinated policy action including accelerated mine development, expansion of refining and manufacturing capacities, scaling up recycling efforts, and supporting producer countries to transform their raw materials. “By promoting domestic processing, integration into regional and global value chains, and industrial transformation, these nations can capture greater value and enhance their role in the global supply chain”, is UNCTAD’s prescription. It’s easier said than done.

Monopoly Situation 

UNCTAD illustrates how Australia, despite being the largest exporter of spodumene, a key raw material used to produce lithium chemicals, is still dependent on China when it comes to battery chemicals due to its limited processing and refining capabilities. “China’s development of lithium iron phosphate (LFP) battery chemistry has propelled the country to dominate about one-third of the market, significantly boosting the country’s prominence in the global battery market. This breakthrough in battery technology has positioned China as a major player in the clean energy sector, as a global leader in the EV and EV battery industries”, the report says. In comparison, India has neither raw material like Australia, nor processing of refining capabilities like China, but its growing electric vehicle market is creating a huge demand – and hence dependence – for these products. A similar story unfolds in the case of ‘copper’ too. While Chile and Peru together account for nearly half of global copper ore and concentrate exports (26 per cent and 21 per cent, respectively). China is the destination for most of these raw material exports (60 per cent). China also stands as the largest importer of refined copper, followed by the United States, India, and Brazil.

Indian Situation 

As of now, there are only a handful of Indian corporates that are trying to master the technology and build downstream capacities. Reliance New Energy Solar (RNES) (India) is the only company that figures in UNTAD’s (battery) report as a company working in developing chemistries using sodium to promote alternative battery solutions. On the copper side, the report mentions only Adani (Kutch Copper) and Birla Copper (Hindalco Industries) as two companies among the world’s major copper refineries. There are nine Chinese companies in the list with multiple times refining capacities as a whole than the combined capacity of Indian firms.

The encouraging news, however, is that India is stepping up its efforts in building capacities and driving innovation in this space.  In February 2025, the Ministry of Heavy Industries (MHI), signed a Programme Agreement with Reliance New Energy Battery Limited under the Production Linked Incentive (PLI) Scheme for Advanced Chemistry Cell (ACC). This agreement awarded Reliance New Energy Battery Limited a 10 GWh ACC capacity, following a competitive global tender process and makes it eligible to receive incentives under India's Rs 18,100 crore PLI ACC scheme.

In January, the Union Cabinet approved the launch of the National Critical Mineral Mission (NCMM) for a period of seven years from 2024-25 to 2030-31, with a proposed expenditure of Rs.16,300 crore and an expected investment of Rs.18,000 crore by Public Sector Undertakings (PSUs) and other stakeholders. The NCMM aims to secure a long-term sustainable supply of critical minerals and strengthen India’s critical mineral value chains encompassing all stages from mineral exploration and mining to beneficiation, processing, and recovery from end-of-life products. A PLI Scheme to Boost the Recycling of Critical Minerals in India is also expected to be launched soon.

India is known to have domestic reserves of minerals like cobalt ore (44.9 million tonnes), copper (163.9 million tonnes), graphite (211.6 million tonnes), and nickel (189 million tonnes). The country has successfully auctioned 24 blocks of critical and strategic minerals in 04 tranches in 2024. The Ministry of Mines is also acquiring overseas mineral assets through a joint venture company, KhanijBidesh India Ltd. (KABIL), which will identify and acquire overseas mineral assets that hold critical and strategic significance, specifically targeting minerals like Lithium, Cobalt and others. KABIL has already signed an Exploration and Development Agreement with CAMYEN, a state-owned enterprise of Catamarca province of Argentina, for Exploration and mining of Five Lithium Brine Block in Argentina with an area of around 15,703 Ha.

While these measures are extremely important from a long-term point of view, Chinese dependency will continue in the short term.