SUMMARY

India's strategic efforts to reduce its heavy dependence on China for rare earth elements, which are vital for manufacturing electric vehicles (EVs), wind turbines, electronics, and other clean energy technologies.

Strategic Efforts

1. Import Dependency and Sources: In FY25, India imported 3,020 tonnes of rare earth compounds, with China supplying 74% (2,232 tonnes), Japan 18% (554 tonnes), and Vietnam 7% (224 tonnes). This reliance on China, which dominates 85% of global rare earth refining and 70% of mining, poses a strategic risk amid geopolitical tensions. India is actively seeking to diversify its import sources, particularly by strengthening ties with Japan and Vietnam, both of which have established rare earth processing capabilities.
2. Geopolitical and Economic Drivers: The push to reduce reliance on China is part of a broader global trend, as countries like the US, Australia, and Japan also aim to secure alternative supply chains for critical minerals. India’s efforts are driven by the need to support its ambitious clean energy goals, including scaling up EV production and renewable energy infrastructure. Rare earths, such as neodymium and dysprosium, are essential for high-performance magnets used in EV motors and wind turbines.
3. Proposed Incentive Scheme: To bolster domestic production, the Indian government is exploring a production-linked incentive (PLI) scheme for rare earth processing and mining, modeled on successful PLI programs for solar modules and battery manufacturing. This could include viability gap funding to make local projects financially feasible, given the high capital costs and technical challenges of rare earth extraction and refining. Such incentives aim to attract private investment and build a robust domestic industry.
4. Domestic Reserves and Production: India holds the world’s fifth-largest rare earth reserves, with 6.9 million tonnes of monazite ore, primarily found in coastal regions like Andhra Pradesh, Odisha, and Tamil Nadu. However, domestic production remains limited. Indian Rare Earths Ltd (IREL), a public sector undertaking, produced only 6,100 tonnes of rare earth oxides in FY25, a fraction of China’s 240,000-tonne output. Challenges include outdated mining technologies, environmental concerns, and regulatory hurdles, which have historically restricted India’s ability to exploit its reserves.
5. Policy Reforms: To address these challenges, the government has introduced several policy measures. The Mines and Minerals (Development and Regulation) Amendment Bill, 2023, removed six critical minerals, including rare earths, from the atomic minerals list, opening the sector to private investment. Additionally, the government waived a 2.5% basic customs duty on ferro nickel and relaxed export duties on low-grade iron ore and bauxite to support domestic industries. These reforms aim to create a conducive environment for mining and processing critical minerals.
6. International Collaborations: India is exploring partnerships with resource-rich countries like Australia, which has significant rare earth deposits, and technology leaders like Japan and the US. For instance, India and Australia have signed agreements to collaborate on critical mineral supply chains, while Japan’s expertise in rare earth processing could help India develop its refining capabilities. These partnerships are crucial for accessing raw materials and advanced technologies to compete with China’s dominance.
7. Global Market Context: China’s control over the rare earth market gives it significant leverage, as seen in past instances where it restricted exports to influence geopolitical outcomes. The global rare earth market is expected to grow rapidly, driven by demand for EVs and renewable energy, making it imperative for India to secure reliable supplies. By fostering domestic production and diversifying imports, India aims to position itself as a key player in the global critical minerals ecosystem.
8. Long-Term Vision: India’s strategy aligns with its broader vision of achieving self-reliance (Atmanirbhar Bharat) in strategic sectors. By developing a domestic rare earth industry, India not only reduces import dependency but also creates opportunities for job creation, technological innovation, and export potential. However, achieving these goals will require sustained investment, policy support, and international cooperation to overcome technical and economic barriers.