Can India’s Critical Minerals Mission Offset China’s Supply Squeeze?

The global electric vehicle (EV) industry is facing turbulent times due to ongoing geopolitical conflicts and trade war which have disrupted global supply chains. Adding to the woes is resource nationalism by China which controls about 60% of global rare earth minerals essential for manufacturing EV motors, batteries, and advanced electronics.

In late 2023 and early 2024, China implemented export restrictions on key rare earth technologies and materials, including a ban on the export of technology used to extract and separate rare earths. While these curbs were initially broad, their impact on India has been particularly sharp.

Recently, China further upped the ante by imposing a ban on export of rare earth magnets to India. These magnets are used in manufacturing of traction motors and other key components in EVs. The ban is also complemented with stricter customs checks and additional licensing requirements for rare earth shipments to India. 

As India aims to scale up its EV ecosystem and transition out from ICE vehicles, this will have an impact in the short and midterm. However, a strategic response by the Government of India can curb the impact with a strategic response. While the initial effort is already visible, here’s how the Government can chart its path to safeguard against any such economic nationalism in the coming years:

A robust policy regime

The Government of India has already started its efforts to cut down import dependency and develop a self-sustaining critical minerals ecosystem. The most significant effort in this direction is the National Critical Mineral Mission by the Ministry of Mines. This mission will encourage public and private partnerships to explore and exploit India’s domestic reserves of rare earths and other key minerals such as lithium, cobalt, and graphite.

The new exploration and mining policy also incentivizes private players and foreign investors to invest in strategic reserves across states like Jammu and Kashmir, Andhra Pradesh and Jharkhand where rare earth reserves have been identified.

Risk diversification through strategic international partnerships 
To reduce dependence on one nation, India has signed agreements with Russia, Australia, Argentina, and other resource-rich countries to access critical minerals. These nations have been India’s long term political and trading allies. For example, Australia is also a member of the Quad geopolitical stability group, along with India. The India-Australia Critical Minerals Investment Partnership is funding joint projects in lithium and other rare earth mining.

Exploration in other countries

Apart from exploiting the limited resources within the country, India is also spanning its search in other countries through joint exploration. For example, Institutions like Khanij Bidesh India Ltd. (KABIL) works towards identifying and co-investing in overseas mineral assets to develop backward linkages for domestic EV and other industries. 

Can India Offset the China Supply Squeeze?

While India has taken initial steps to reduce the impact of Chinese supply squeeze, it is not possible to completely offset it. This is because China has made decades of investments not only in mining of rare earth materials but also in enhanced refining and magnet-making technologies. It is not possible to replicate the scale of these downstream processes within the next decade or so. 

Even with the right investments, rare earth supply chain is complex and heavily depends on high end technology. India must accelerate its R&D capabilities, simplify the process for environmental clearances, and create targeted incentive structures to enable private players to join hands.

The recent geopolitical context and policy momentum has provided a foundation for India to work towards a more diversified supply of rare earth minerals. India should press full throttle to use this opportunity and secure its EV and other key industries against future supply chain shocks. 

Yogesh Bhatia is MD, and CEO of LML.Views expressed are the author's personal.