How India Is Tackling China's Rare Earth Challenge
Renewed high-level interactions between India and China last August sparked optimism in Indian strategic circles regarding a potential easing of export restrictions on rare earth minerals. However, the announcement from the Chinese commerce ministry on October 9 made it clear that China intends to restrict access to these critical resources for rival nations, including India, particularly in strategic sectors.
China has intensified its economic war on a global scale, leveraging rare earth minerals as a key tool in this strategy. The new export policy specifically targets the defence sector, requiring India to secure a specific license for imports and to certify that any rare earths obtained for civilian use will not be redirected to defence industries or third countries. This move presents a significant challenge not only for India but also for the United States, which has implemented similar restrictions on the export of advanced semiconductor chips to China.
While it is anticipated that China may use its rare earth resources as a bargaining chip with US companies, India finds itself in a precarious position, lacking any substantial offerings to negotiate in exchange for these vital minerals or magnets. This situation underscores the complexities of international trade dynamics and the strategic importance of rare earth elements in global economic relations.
China's assertive stance regarding its rare earth monopoly signals its intention to dictate the rules of the global economy and engage in strategic power dynamics. Recognising that India's economic and strategic growth heavily relies on rare earth minerals and magnets sourced from China, which dominates their production, China is poised to leverage this advantage. Any disruption in the supply of these critical materials could severely impact India's civilian and defence industries, which have been making significant strides in developing advanced industrial products that compete with Chinese offerings.
China's Recent Policy Shifts
The Indian automotive, electronics, and medical diagnostic sectors have been progressing towards cutting-edge innovations, but China's recent policy shifts aim to undermine this competitive edge by restricting access to essential rare earth products. Furthermore, India's defence industry has been carving out a niche in the global market, yet China's actions appear designed to thwart not only India's ambitions but also those of other nations, including the United States and Europe, by limiting their ability to produce high-tech goods.
With the implementation of a restrictive export policy on rare earth minerals, China has effectively established a technology denial regime reminiscent of those employed by the U.S. during the Cold War. This new framework includes stringent oversight mechanisms to verify the end users of these materials, complicating the import process for Indian manufacturers. China's export restrictions specifically target applications of rare earths in defence and dual-use industrial products, extending similar limitations to the U.S. and other countries, thereby consolidating its strategic control over these vital resources.
Rare Earth Materials' Reduced Availability
Reduced availability of rare earth materials and magnets poses a significant threat to high-tech industries, impacting both commercial and strategic sectors in the near term. While countries reliant on these supplies are formulating national strategies to secure mining, extraction, and refining technologies, their immediate challenge remains meeting the urgent demands of various industries. Given their critical role in the industrial value chain, China is strategically leveraging its capabilities in rare earth minerals.
Rare earth materials have become a focal point of geopolitical competition and rivalry. China has effectively weaponised these resources in the modern economic landscape, using them to undermine rival nations and directly influence their manufacturing capabilities, whether in consumer goods like automobiles or defence technologies such as missiles. The recent export restrictions imposed by China on rare earth elements threaten to significantly curtail the production capacity of advanced weapon systems, including missiles, drones, and defence electronics. This tactic mirrors the earlier actions taken by the United States, which imposed restrictions on high-end semiconductor chip exports to Chinese firms to prevent market dominance.
China's Near-Monopoly On Rare Earth Mineral Market
Rare earth elements, a group of 17 chemically similar metals, are essential for high-tech applications due to their unique magnetic and electrical properties. China has gradually established a near-monopoly on the rare earth mineral market, accounting for approximately 70% of the global supply, raising serious concerns about supply chain security.
Strategic and Industrial Implications for India
India must adopt a comprehensive strategy to address the ongoing supply chain challenges in rare earth materials. This involves energising domestic rare earth companies through various incentives and reforms within the mining sector. Additionally, India should engage in bilateral partnerships with nations such as Australia, the United States, and Japan, while also collaborating with multilateral organisations like the QUAD.
The QUAD Critical Minerals Initiative, announced on July 1 during a meeting of foreign affairs ministers in New York, aims to bolster economic security and resilience among member countries. This initiative includes plans for a unified industrial strategy that promotes joint investments and research.
On the domestic front, the Indian government has established a National Critical Mineral Stockpile (NCMS) to support its broader objective of enhancing the production of rare earth magnets. Furthermore, an inter-ministerial panel has approved a substantial incentive scheme worth Rs 7,300 crore, aimed at producing up to 6,000 tonnes of rare earth magnets over the next five years. These measures are designed to strengthen India's position in the global rare earth market.
India’s Roadmap: Domestic Capacity, Global Partnerships, and Resource Security
In addition, the government has launched the National Critical Minerals Mission (NCMM), which allocates Rs 500 crore to mitigate supply shocks and ensure a consistent supply of minerals for domestic industries. This initiative reflects India's commitment to securing its mineral resources and fostering a sustainable industrial ecosystem, ultimately enhancing the nation's economic stability and growth.
India is believed to possess the third-largest deposits of rare earth elements, estimated at 7.23 million tonnes of rare earth oxide contained within 13.15 million tonnes of monazite. These deposits are primarily found along the coastal regions of Andhra Pradesh, Odisha, Tamil Nadu, Kerala, and in parts of West Bengal, Jharkhand, Gujarat, and Maharashtra. In response to the growing demand for these critical minerals, the Mines Ministry has initiated the auctioning of these mineral sites, having conducted five rounds by mid-October, which included 55 strategic mineral blocks, of which 34 have been successfully awarded. A sixth round of auctions was launched last month to further enhance exploration and production efforts.
The urgency of these auctions has been driven by China's restrictive export policies, which have significantly impacted global supply chains. To mitigate these challenges, the Indian government aims to establish a two-month reserve of essential rare earth materials, encouraging active participation from private enterprises. Commerce Minister Piyush Goyal emphasised India's strategy to diversify its sources of rare earths by negotiating trade agreements with countries such as Chile and Peru, while also promoting domestic exploration through collaborations with startups focused on recycling critical minerals. Additionally, India is pursuing mining rights in various African nations.
With several initiatives already underway, it is crucial for authorities to implement these strategies with urgency, both domestically and through international partnerships with like-minded groups such as the QUAD. If India effectively navigates this landscape, it has the potential not only to achieve self-sufficiency in rare earth production but also to emerge as a significant exporter of these vital resources within the next decade.
( The writer is a senior journalist and strategic affairs analyst )
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