By Araudra Singh
The growing significance of critical minerals across the international community, including for developing economies like India cannot be overstated. Imperatives of India’s industrialization and Sustainable Development Goals have amplified the nation’s reliance on these minerals. With their applicability in sectors ranging from high tech and telecommunications to renewables and defence, the Economic Survey of 2022-23 deemed the critical minerals as an upcoming “geopolitical battleground”, signs of which are already apparent. The salience of these indispensable reserves is not only evident by New Delhi’s international engagement in the recent past but also by Finance Minister Nirmala Sitharaman’s recent Union Budget speech in Lok Sabha.
Plans Charted in the Union Budget
The Finance Minister stated the government’s intentions to set up a Critical Mineral Mission for domestic production, recycling, and overseas acquisition of critical minerals. Its mandate would also include technology development, a skilled workforce, an extended producer responsibility framework, and a financing mechanism. Furthermore, the Minister during her speech, proposed to fully exempt customs duties on 25 critical minerals and reduce basic custom duties on two of the minerals. Both announcements entail significant implications.
Firstly, establishing a Critical Mineral Mission reflects national objectives of not only securing resilient domestic supply chains to mitigate strategic vulnerabilities presented by geopolitical uncertainties, supply chain disruptions, and import dependence on China, but also leveraging foreign reserves, technology, and capital through trusted bilateral and multilateral partnerships. Secondly, the statement is also emblematic of the official desire to foster technological advancement across the critical mineral value chains. Thirdly, the plan to exempt custom duties, besides securing the resources to strategic sectors in a cost-effective manner, is also likely to nudge India’s pace towards a clean energy transition, including the manufacturing of electric vehicles (EV). Lastly, exemption on duties would also enhance global competitiveness across a range of sectors in which the critical minerals are used for manufacturing vital components.
Addressing the Infirmities in the Supply Chains
India’s objective to develop entire value chains for the resources faces multipronged challenges. While the last four fiscal years have seen Union allocations to the Ministry of Mines, overseeing these critical assets rise, the disbursement for capital expenditure has been on a declining trend. Limited fiscal room for capital expenditure is worrying and antithetical to the budget and Critical Mineral Strategy’s focus on boosting domestic production, recycling, and innovation financing. Increasing industrial demands for resources, and the lack of extraction, processing and recycling technology and facilities warrant a significant increase in the Centre’s allocation for capital expenditure. Given the ever-increasing long-term criticality of the minerals, it does not seem to be ideal to be primarily dependent on private or foreign direct investment.
While critical minerals are found in large volumes across the globe, extracting and refining them is not only technologically intensive but also costly. Failing to receive the required number of minimum bidders, the Ministry of Mines recently scrapped the auction of lithium blocks for the second time in five months. The lacklustre response from the investors draws from India’s outdated resource classification rules, lacking adequate information regarding the economic viability of mining a block. Information on economically viable reserves with high geological confidence remains an imperative for mining firms, given the expensive extraction process.
Unlike exploration and manufacturing, the midstream activities i.e., processing and refining, which is the most important part of critical mineral value chains have not attracted requisite attention from the government, including through recent amendment to the Mines and Minerals (Development and Regulation) Act, 1957. Consequently, the metal refining infrastructure such as vapor metallurgy needs to be amongst the official priorities to sustainably refine these minerals, without which an indigenous reliable ecosystem for minerals would remain elusive. Attaining capabilities to sustainably transform primary and secondary sources to intermediate materials calls for investment, especially in R&D to support research beyond the current laboratory-scale studies.
Subsequent to processing and refining, manufacturing and recycling part of the value chains also merit serious discussions among the policymakers. As technology evolves, India’s economy in future will be further underpinned by technologies that depend on minerals such as lithium, graphite, cobalt, titanium, and rare earth elements. For instance, the critical minerals input required in the manufacturing of an EV is six times that of a traditional car. Already, seven of the total thirteen sectors in the Production-Linked Incentives (PLI) scheme involve these critical assets in manufacturing vital components, such as solar PV modules and auto components. Besides, there are only seven recycling plants in India that can extract reusable materials from used batteries, which is particularly concerning given very limited domestic reserves. India’s burgeoning industrial needs, abundant e-waste and restricted mineral reserves signal the need for investment in cost-effective manufacturing and recycling plants. Amidst price volatility, surging global demand for clean energy technologies, and acute supply and geopolitical risks for minerals, including those considered critical by India, boosting recycling capabilities remains not only an environment-friendly option but also key to secure and cost-effective supply. India’s trajectory towards clean energy goals is expected to generate EV market growth at a CAGR of 49% till 2030. Thus, investing in recycling facilities that can extract and refurbish lithium-ion batteries also necessitates the government’s imminent consideration.
Recycling of critical minerals is expected to upscale going forward since one of the mandates of the Critical Mineral Mission as prescribed by the Union budget is the Extended Producer Responsibility (EPR) framework. The rules based on the concept of EPR and relevant to critical minerals are E-Waste Management Rules, 2022 and Battery Waste Management Rules, 2022. While these rules are expected to bring new technologies and investment in the recycling and refurbishment industry, both are riddled with inherent flaws.
In May 2023, the Cellular Operators Association of India (COAI) made representation to the Ministry of Environment, Forest and Climate Change (MoEFCC) asking for a one-year deferral of EPR obligations to private telecom operators. The telecom body wrote to the Ministry as the industry was not consulted regarding the average life-cycle of telecom and broadcasting equipment. The end-of-life disposal timeframe imposed under the EPR rules could increase compliance costs and capital expenditure, potentially affecting the network, since the obligations enforced are not in sync with real-world life cycles of products. Also, the weighty targets imposed which make it difficult to absorb the compliance costs as often argued by smaller businesses, merits a reappraisal. The e-waste rules also involve a stark omission. The provision for levying “environmental compensation” to producers, manufacturers, refurbishers, and recyclers for violating norms, does not contain a specified quantum of penalty. Similarly, Battery Waste Management Regulations are also not clear on the penalty imposed for violation of EPR targets and obligations. The rules for battery management also lack a directive on the funds that producers should pay to recyclers for obtaining EPR certificates or fulfilling obligations. This ambiguity can potentially affect the sum paid for waste collection and refurbishing to recyclers. It’s clear that both the rules have their respective loopholes and discrepancies which need to be resolved first, for streamlined implementation of the EPR framework.
Another line of decree entrusted in the Critical Mineral Mission is the skilling of the workforce. Having a skilled workforce and expertise across the value chains is equally salient, which would primarily require leveraging the technical expertise of Western partners like the US, and Australia through knowledge sharing and joint research arrangements. Considering India is the only developing nation in the US-led Mineral Security Partnership (MSP), it would do well to play its cards right and actualise objectives of becoming self-reliant in supply chains by collaborating in capacity-building initiatives in both upstream and midstream activities. While joint ventures in mining, processing, and R&D efforts in sustainable mining technology and extraction practices remain significant, it would serve India well to give partnership with Global South equal weightage. Collaborating with developing countries rich in mineral reserves like Argentina, Brazil and Chile is equally important in avoiding supply chain disruptions. The partnership with Latin American states cannot be merely mineral acquisition or joint exploration but also involve quid pro quo entailing Indian investments in sustainable extraction and processing infrastructure, which they lack.
Therefore, it’s clear that while the Union Budget 2024-25 strikes the right chord vis-à-vis critical minerals, the real challenge lies in implementation. India’s quest for reliable, diversified, and sustainable supply chains for critical minerals is set to be of paramount importance whilst it continues to balance environmental sustainability and developmental growth. Consequently, in the short term, the relevant waste management rules and official reporting standards need to be amended to shun ambiguities and make them attuned to the ground realities of the industry. Whereas, in the longer run, besides collaborating with like-minded and technologically advanced countries, India’s pursuit to become self-reliant across the value chains needs a significant upscale in capital expenditure, including in R&D.
(Araudra Singh is an author, and non-resident Assistant Editor at the Consortium of Indo-Pacific Researchers, New Jersey.)
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