Pankaj Vashisht

Since the outbreak of Covid pandemic, supply chain resilience has gained prominence. Recent chip shortage that severely affected the global supply chain of several high tech products further has hasten urge for supply chain diversification of key inputs and Rare Earth Elements (REE) are on the top priority. REE are crucial inputs for all high tech innovations of recent times including hybrid vehicles, cell phones, silicon chips, high strength magnets, next generation rechargeable batteries, biofuel catalysts, advance lesser guided system etc and their global supply has remained extremely concentrated.

In 2018, global REE reserves were estimated to be around 132 million tonnes, spread across several countries with China, Brazil, Russia and Vietnam having the biggest reservoirs. However, mining and processing of REE is quite complex, energy intensive and produces radioactive waste. Given this, only few countries have been able to develop REE industry.

Initially, mining and processing of REE was concentrated in the US. However, with growing environmental concerns, REE mining and processing started shifting to China in early 1990s, which used lax environmental regulations along with other fiscal incentives to establish a near monopoly on REE supply chain, especially in metal refining segment. Chinese success in REE sector initially provided a big relief to advanced countries as it ensured access to REE at cheap prices, without incurring environmental damages. However, with China joining the global tech race along with its willingness to use monopoly on REE as coercive tool in trade and diplomacy have forced global tech leaders to explore alternative source REE supply.

India’s rich reserves

India is endowed with rich REE reserves. With almost 7 million tonnes of REE reserve, India accounts for more than 5 per cent of global REE reserves, fifth largest in the world.India started efforts to develop domestic REE production capacity in 1950s, when it established the Indian Rare Earth Ltd (IREL) for mining and processing of REE.

Nonetheless, in spite of rich reserves and an early start, India has not been able to develop the REE industry and its share in global REE market has remained negligible. Ironically, IREL, which was established to produce REE, never actually focused on REE production. Instead, IREL gave more importance to thorium and other minerals such as ilmenite, zircon, rutile etc. Consequently, for years, REE production in India remained stagnant at around 2,000 tonnes before increasing to 4,215 tonnes in 2018-19.

Extremely low domestic supply of REE ensured that downstream REE industry virtually remained absent in India, forcing Indian manufacturers to rely on the imports of finished REE derivates from China to meet the booming domestic demand of consumer electronics, computing equipment, electric machinery, solar panels etc., leading to a massive increase in trade deficit.

India’s inability to realise REE potential can mainly be attributed to passive government attitude. REE exploration and processing is fraught with financial, technological and environmental challenges and therefore needs government support in terms of clear policy and financial handholding in the initial phase of development. However, in spite recognising the importance of REE, the government failed to devise a clear policy or road map for the development of REE sector. Instead of having a separate policy for REE, government clubbed REE with atomic minerals which ensured state monopoly and kept the foreign and private domestic investors away, leading to a stagnant REE sector.

Growing disenchantment with China has opened an interesting opportunity for India to develop its REE sector. Countries like Japan, South Korea, France and the US are aggressively trying to establish an alternative supply chain of REE. All these countries are exploring the opportunity for technical and financial cooperation with like minded countries having REE reserves. Especially, Japan and the US have recently deepened their cooperation with Australia to ramp up the REE mining and processing outside China. India has twice the REE reserves of Australia and therefore has great potential to partner with global tech leaders.

Cooperation with Japan, Australia and the US can help India to bridge the technology and financial viability gap to boost REE industry. However, before seeking international cooperation, India needs to put its house in order. Two steps are required to boost REE industry.

Boosting REE industry

One, India should urgently chalk out a clear policy for REE sector with realistic objectives. Second, it should amend Atomic Mineral Concession Act (2016) which has reserved all beach Sand Mines deposits containing more than 0.75 per cent Monazite (source of REE) for government owned companies. These two measures if taken immediately have potential to transform India in to a major REE producer.

Development of upstream REE industry can potentially be a boon for India. Chinese experience show that availability of REE supply can be a very effective tool to attract foreign direct investment in high tech manufacturing sector which use REE as input. India too can leverage REE reserves to stimulate economically more valuable downstream high tech manufacturing to achieve the target of Atamnirbhar Bharat.

Author is an Associate Professor at Research and Information System for Developing Countries