Why in news?

The Union Government has revised royalty rates for four key critical minerals — graphite, caesium, rubidium, and zirconium — essential for green energy technologies. The move aims to boost domestic exploration, reduce import dependence, and strengthen supply-chain security.

Graphite has shifted from a fixed per-tonne royalty to an ad valorem system. High-grade graphite (80%+ fixed carbon) will now incur a 2% royalty on the Average Sale Price (ASP), while lower-grade graphite attracts 4%.

Caesium and rubidium will each have a 2% royalty, and zirconium’s rate has been sharply reduced to 1% from the previous 12% uniform levy.

What’s in Today’s Article?

• Why India Shifted to Ad Valorem Royalty for Critical Minerals?
• Rising Demand and India’s Critical Mineral Dependency
• Revised Royalty Rates: What They Mean for India’s Critical Mineral Push
• India’s Critical Mineral Bottleneck: Mining More Isn’t Enough
• The Way Forward

Why India Shifted to Ad Valorem Royalty for Critical Minerals?

• ASP (Average Sale Price) reflects the weighted average ex-mine price of minerals from non-captive mines, published monthly by the Indian Bureau of Mines (IBM).
• For minerals lacking domestic pricing, IBM relies on United States Geological Survey (USGS) data converted into INR.
• Experts say shifting to ad valorem royalties makes the system market-responsive and attractive to investors.
• As sale prices rise with global demand, state revenues increase proportionally, ensuring fair value.
• The reform also comes amid China’s prolonged export restrictions on key minerals.
• With China controlling 90% of global critical mineral processing, supply-chain disruptions have pushed India and other countries to diversify sources and stabilise domestic production.

Rising Demand and India’s Critical Mineral Dependency

• India’s renewable energy and EV ambitions will sharply raise demand for critical minerals, many of which the country imports entirely.
• India remains 100% import-dependent for cobalt, lithium, nickel, REEs and silicon — all vital for batteries, solar, semiconductors and advanced electronics.
• The government expects revised royalty rates to attract more bidders and unlock associated minerals such as lithium, tungsten, REEs and niobium.
• However, progress has been limited: since auctions began in 2023, only 34 of 81 critical mineral blocks have received successful bids.
• Despite having sizable reserves, India’s mining and processing capacity remains restricted by policy gaps, technical limitations and insufficient investments.

Revised Royalty Rates: What They Mean for India’s Critical Mineral Push?

• India classifies 30 minerals as “critical,” though caesium and rubidium — included in the latest royalty revision — are not part of India’s list, even though countries like the US, Canada and South Korea consider them critical.
• The revised rates are part of a continuing series of royalty reforms, following earlier revisions in 2022, 2023 and early 2024 covering minerals such as cobalt, indium, titanium, tungsten, molybdenum, and REEs.
• Under the MMDR Act’s Second Schedule, most minerals follow an ad valorem royalty structure linked to ASP, while only six, including graphite, previously followed per-tonne rates.
• Why the Shift Was Needed?
  • Earlier, graphite’s per-tonne royalty system made mining unviable during price falls or for lower-grade deposits.
  • Moving to ad valorem rates aligns royalties with real market prices, improving commercial viability.
  • Caesium, rubidium and zirconium were previously subject to the default 12% ASP rate, despite lacking defined ASPs or domestic production.
  • This discouraged bidders and limited exploration.
• Expected Impact
  • The newly lowered and transparent ad valorem rates are expected to:
    • Provide predictable royalty obligations for bidders
    • Improve auction participation
    • Encourage domestic mining and production of key minerals
    • Reduce import dependence and strengthen India’s supply-chain resilience

India’s Critical Mineral Bottleneck: Mining More Isn’t Enough

• India’s critical mineral ecosystem faces structural weaknesses that cannot be solved by royalty revisions alone.
• A study identified regulatory gaps, low private-sector incentives, limited technical expertise, and inadequate financial capacity as major barriers to mining, explaining the modest response to critical mineral auctions.
• Weak Processing Capacity: The Core Constraint
  • A far deeper challenge lies in mineral processing, where India remains heavily import-dependent.
  • The analysis highlights three connected limitations:
    • Low processing scale,
    • Difficulty securing raw materials, and
    • Relatively small domestic demand.
  • Even in minerals like copper — where India has significant smelting capacity — the country contributes just 3% of global processed output.
  • For rare earth elements, private participation was historically restricted because they were categorised as atomic minerals.

The Way Forward

• Expanding mining alone will not bring self-reliance unless India also builds the ability to convert raw minerals into high-purity materials needed for batteries, semiconductors, optics and advanced manufacturing.
• For true strategic autonomy in EVs, electronics and green technologies, India must develop a full domestic value chain — mining and processing — to reduce import dependence and strengthen supply-chain security.