The war in West Asia and the disruption of the Strait of Hormuz offer a vantage point to interpret the increasingly complex supply chain issues haunting a fractured, trust-deficient world. There is a haphazard rush for resource capture and a growing fervour of resource nationalism.
India appears to be at the receiving end of this geopolitical churn, perhaps more than any other large nation. The country has only recently surpassed China as the world’s largest oil demand driver, with gasoline and diesel consumption in the neighbouring country slowing due to its massive adoption of electric vehicles and gas-fired trucks. As much as 89% of the crude oil consumed by India is imported, as is nearly half of its natural gas.
India’s persistent exposure to external supply shocks is not restricted to energy; it extends to non-hydrocarbon minerals as well. For instance, bauxite production has been stagnant over the last decade, and chromite output has even declined. Domestic copper production has been falling, necessitating a tenfold jump in imports of this base metal in the last decade, along with an export plunge.
What does aggregate data reflect?
The picture is clearer from aggregated data: gross value added (GVA) in “mining and quarrying” lost its share in overall GVA from 4.8% in 1999-2000 to just 2% in recent years. The country is also heavily import-dependent for critical minerals. While India’s import reliance is nearly 100% for lithium and cobalt, 70% of its current supplies come from China.
To be fair, India’s policymaking has been responsive to growing mineral constraints in recent years. The last decade saw sweeping reforms in the non-hydrocarbon mineral segment, including the launch of an auction-based allocation system. Composite leases covering prospecting to mining were introduced, along with certainty of tenures and transferability of rights. All this is intended to spur the largely elusive private investor, particularly in extracting deep-seated resources.
Administered nature of natural gas pricing has been considerably eased, especially with regard to geographically challenging offshore fields. A National Critical Mineral Mission was launched in January last year, with solid budget and public-sector support. For the first time, exploration licences for critical mineral blocks were auctioned off, with the facility of artificial intelligence-enabled targetting.
Coal India, NTPC, Adani Group, Vedanta, and others have laid out plans to venture overseas to explore battery minerals. Bilateral long-term contracts are being finalised with mineral-rich countries. Early this year, Prime Minister Narendra Modi set tall targets, such as $100 billion in investments in the oil and gas sector and the exploration of one million square kilometres by the end of this decade.
Yet, it is clear that the policy initiatives thus far haven’t squared up. The current conflict troubling most of West Asia has raised input costs for assorted Indian industries in no time. Scattered resources and the absence of advanced processing technologies have apparently dissuaded private investors from betting big on India’s mineral fields. This has limited the overall scale of operations and efficiency gains. Mining intermediaries inflate costs.
The need to rework policies
Policies need to be reworked to address these issues and encourage investments in mineral processing. The latest moves, such as mandating that all solar projects use locally manufactured ingots and wafers, underscore the renewed importance given to indigenisation and upstream linkage. These are welcome.
Simultaneously, mining infrastructure must be upgraded and integrated seamlessly with global supply lines and maritime networks. Outbound investments in search of strategic mineral security must accelerate.