Context

• In the rapidly evolving geopolitical landscape, critical minerals have emerged as a fulcrum of international economic diplomacy.
• These essential resources underpin technologies across aerospace, semiconductors, batteries, and advanced electronics, placing them at the centre of global strategic competition.
• Recent actions by China and the responses they have elicited highlight the importance of these minerals and underscore the challenges and opportunities they present for nations such as India.

China's Strategic Leverage in Critical Minerals

• On January 2, 2025, China’s Ministry of Commerce (MOFCOM) expanded its export control list to include 28 U.S. entities, restricting their access to dual-use export-controlled items.
• Among the key items are minerals like tungsten, gallium, magnesium, beryllium, hafnium, and lithium-6, essential for high-tech industries.
• This move reflects a strategic approach by China, which has historically weaponized its critical mineral exports to assert influence over its geopolitical rivals.
• China’s actions are calculated and constrained by two factors: its reliance on imported raw materials and the need to protect its domestic industrial ecosystem.
• This dual strategy has been evident in actions such as the rare earth minerals embargo against Japan in 2010, restrictions on antimony, gallium, and germanium exports, and a December 2023 ban on rare earth extraction technologies.
• These moves demonstrate a deliberate balancing act, leveraging critical minerals as both a tool of influence and a pillar of its domestic economy.

India’s Challenges in Domestic Mineral Market

• Underdeveloped Exploration Infrastructure
  • A major impediment to India’s critical mineral strategy is the lack of advanced exploration infrastructure.
  • Despite the identification of potential mineral-rich zones, the country’s exploration activities remain at nascent stages, classified under preliminary categories (G3 or G4).
  • This creates uncertainty for investors, who demand detailed geological data to assess commercial viability.
• Ineffective Market Engagement
  • India’s auctioning processes for mineral blocks have faced limited interest from private players, both domestic and foreign.
  • For example, the much-publicised discovery of lithium reserves in Jammu and Kashmir has not translated into active bidding or operational development.
  • The absence of investor enthusiasm points to deeper issues, including policy ambiguities and an unattractive risk-reward ratio.
• Regulatory and Fiscal Gaps
  • Although the government has taken steps to reform mineral policy, regulatory hurdles persist.
  • The classification of resources and delays in granting licenses often deter investors.
  • Furthermore, the reimbursement model for exploration expenditures, which only provides incentives post-production, fails to address the significant upfront costs that private firms must bear.
• Dependence on Imports
  • Despite efforts to develop domestic capacities, India remains heavily reliant on imports for critical minerals.
  • This dependence not only exposes the country to geopolitical risks but also raises concerns about the sustainability of its industrial growth.

India’s Opportunities for Growth and Development of Mineral Sector

• Strategic Resource Potential
  • India’s geological landscape holds significant untapped potential for critical minerals.
  • Discoveries like the lithium deposits in Jammu and Kashmir signal the possibility of reducing import dependence and bolstering domestic production.
  • Such reserves could play a pivotal role in supporting India's clean energy transition and emerging EV sector.
• Policy Reforms and Technological Innovation
  • The Mines and Minerals (Development and Regulation) Amendment Act, 2023, marks a positive shift in India’s mineral policy framework.
  • By introducing exploration licenses and lifting restrictive classifications on certain minerals, the government has opened avenues for private and foreign participation.
  • These reforms, coupled with advanced technologies like remote sensing and AI-driven geological surveys, could accelerate resource discovery and extraction.
• Global Alliances for Critical Mineral Security
  • India’s participation in international collaborations, such as its partnership with Australia for lithium and rare earth supplies, highlights a proactive approach to securing critical mineral resources.
  • Leveraging strategic alliances and foreign investments through bodies like Khanij Bidesh India Ltd. (KABIL) can help India diversify its supply chains and reduce dependence on hostile or unreliable sources.
• Economic and Industrial Transformation
  • Developing a robust critical mineral sector offers transformative potential for India’s economy.
  • Beyond reducing import dependency, a well-structured mineral industry could drive employment, technological advancement, and value-added manufacturing, particularly in sectors like electronics, renewable energy, and defence.

Reforms and Impacts and the Role of Fiscal Incentives

• Reforms and Impacts
  • One of the key reforms in the 2023 amendments is the introduction of an exploration license designed to attract specialised resource exploration agencies, including foreign companies.
  • This allows firms to focus on reconnaissance and prospecting rather than committing to full-scale mining operations upfront.
  • Further, the promise to reimburse 50% of exploration costs upon the commencement of mining offers a mechanism to de-risk early-stage investments.
  • However, these reforms have yet to yield substantial results.
  • Foreign participation remains sparse, and auctioning for mining licenses has stagnated.
  • A significant bottleneck is the outdated resource classification system, which leaves prospective bidders uncertain about the commercial viability of mineral blocks.
  • Many auctioned blocks are in preliminary exploration stages (G3 or G4), which deters investment due to insufficient geological data.
• The Role of Fiscal Incentives
  • Robust exploration data is critical to mitigating information asymmetry between mining companies and the government.
  • Without detailed geological surveys, bidders are likely to discount their offers or abstain entirely, leading to suboptimal auction outcomes.
  • To address this, India could adopt a model similar to its approach in semiconductor fabrication, where substantial upfront fiscal incentives are offered.
  • Providing direct capital support during the exploration phase, rather than reimbursing costs post-production, could attract greater participation and unlock downstream value in mining and exports.

The Way Forward: Striking a Balance

• India stands at a critical juncture where addressing its challenges in mineral exploration and production could unlock tremendous opportunities.
• To achieve this, policymakers must focus on bridging information gaps through detailed geological surveys, offering upfront fiscal incentives to de-risk investments, and creating a stable regulatory environment.
• These steps, combined with leveraging global partnerships, can enable India to emerge as a significant player in the global critical minerals market.

Conclusion

• The global competition for critical minerals is reshaping international economic strategies, with China leveraging its dominance and nations like India grappling with systemic challenges.
• While India has initiated promising reforms, their success hinges on overcoming information gaps and incentivising private-sector participation.
• By embracing a proactive, investment-driven approach to mineral exploration, India can transform its critical mineral sector into a cornerstone of its economic and technological aspirations.