OPINION: Here's how India can end Chinese dominance in rare earths

• Rare earth elements contribute a total value of nearly $200 billion to the Indian economy.
• China today controls nearly 90% of global rare earth production.
• India has the world’s fifth-largest reserves of rare earth elements, nearly twice as much as Australia, but it imports most of its rare earth needs in finished form from its geopolitical rival, China.

As US-China geopolitical rivalry becomes a permanent feature of the global economy, the globalised supply chains that have powered India’s economic growth can no longer be taken for granted. Rare earth elements (REEs) are central to this new post-pandemic economic landscape: they underpin everything from advanced ballistics systems to industrial machinery and TV screens, contributing a total value of nearly $200 billion to the Indian economy. They are also crucial to emerging technologies such as renewable energy and electric vehicles.

China today controls nearly 90% of global rare earth production, posing a vulnerability to manufacturing industries, which the rest of the world is moving to redress. New REE investments and partnerships between China’s geopolitical and geoeconomic rivals, such as Australia and the US, are being announced practically every week.

These developments offer India a precious opportunity. India has the world’s fifth-largest reserves of rare earth elements, nearly twice as much as Australia, but it imports most of its rare earth needs in finished form from its geopolitical rival, China. With adjustments to the existing policy, India could emerge as a rare earths supplier to the world and use these resources to power a high-end manufacturing economy geared to the needs of the 21^st century. Here’s how.

Existing Bottlenecks

Merely having deposits of rare earths is no guarantee of being able to exploit them. The mining and extraction processes are capital-intensive, consume large amounts of energy, and release toxic by-products, an issue that has caused some controversy in India before. Processed minerals usually take the form of a rare earth oxide (REO), which then needs to be converted into a pure metal before it can be used to manufacture anything.

India today has granted government corporations such as Indian Rare Earths Limited (IREL) a monopoly over the primary mineral that contains REEs: monazite beach sand, found in many coastal states. IREL produces rare earth oxides (low-cost, low-reward “upstream processes”), selling these to foreign firms that extract the metals and manufacture end products (high-cost, high-reward “downstream processes”) elsewhere. IREL’s focus is to provide thorium — extracted from monazite — to the Department of Atomic Energy. As such REE production in India is conducted almost entirely by a government organisation focussed on something else entirely! Unsurprisingly, with little incentive to provide to global markets, IREL accounts for only a minuscule fraction of the world’s production: only 2265 tonnes of REOs in 2016-17, providing almost no value to domestic manufacturers and consumers, who continued to import finished REE derivatives from China.

Reforms and Solutions

The key challenge for India today is to scale up upstream and downstream processes in the rare earths value chain. Depending on IREL and government financing to do so is to play the game with one hand tied behind its back. India must open its rare earth sector up to competition and innovation, and attract the large amounts of capital needed to set up facilities to compete with, and supply to, the world.

The best move forward might be to create a new Department for Rare Earths (DRE) under the Ministry of Petroleum & Natural Gas, drawing on its exploration, exploitation, refining, and regulation capabilities. This DRE should oversee policy formulation and focus on attracting investment and promoting R&D, with its first move being to allow private sector companies to process beach sand minerals within appropriate environmental safeguards. It should also create an autonomous regulator, the Rare Earths Regulatory Authority of India (RRAI), to resolve disputes between companies in this space and check compliance.

There are three possible approaches to maximising India’s rare earth potential. First, the DRE could secure access to REEs of strategic importance by offering viability gap funding to companies to set up facilities in the upstream sector. This could make Indian REOs globally competitive. Alternatively, it could focus on downstream processes and applications, such as manufacturing magnets and batteries; this would require a focus on port infrastructure and ease of doing business measures to allow Indian manufacturers to import REOs from whitelisted producers cheaply. Finally, it could coordinate with other agencies to partner directly with groupings such as the Quad, building up a strategic reserve as a buffer against global supply crises.

According to a 2016 estimate, the Indian REE industry could potentially “net a capital employment of about Rs 121,000 crore, including Rs 50,000 crore worth of foreign exchange”. The US, Japan, and Australia are announcing collaborations in this sector worth hundreds of millions of dollars; meanwhile, India’s relationship with China offers little guarantee that there will be no coercive economic actions in coming decades. India has already missed one global wave of industrial manufacturing. Its rare earth reserves and the post-pandemic economic situation offer it an opportunity to ride the next wave towards high-tech manufacturing. It must be sure not to miss this chance.


The author, Anirudh Kanisetti, is Associate Fellow at the Takshashila Institution.


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