On the Critical Minerals Sector – Charging growth

Source: This post on the Critical Minerals Sector has been created based on the articles “Charging growth” and “India takes cover as critical mineral imports shoot up” published in “Business Standard” on 15^th December 2023.

UPSC Syllabus Topic: GS Paper 1 Geography – Distribution of key natural resources across the world.

News: The article discusses the critical minerals sector. It highlights recent developments concerning India’s critical minerals sector. It also points to the challenges of this sector.

What are critical minerals?

Critical minerals are those minerals that are at risk of supply shortage, and which may have a large impact on the economy and national security. They have complex global supply chains with a high concentration in the extracting and processing countries, resulting in high supply risks.

These include minerals such as lithium, graphite, potash, silicon, titanium and rare earths (REE).

What are the recent developments in India’s critical minerals sector?

Policy Initiatives:
1. India issued its first critical minerals policy listing 30 minerals important for India’s net-zero transition.
2. 100% foreign direct investment (FDI) is allowed in the mining and exploration sector under the automatic route

Exploration and Mining Auction: Government recently initiated the auctioning of 20 blocks of critical minerals, including J&K’s lithium reserves. Also, 125 projects are underway to explore critical minerals.

Geopolitical Initiatives: Recently, India became the first developing country to be inducted into the US-led Mineral Security Partnership (MSP).
More about MSP here.

What are the concerns with the sector?

1. Scarce supply of minerals.
2. China’s sole dominance: China is a central player in the global critical mineral supply chains, particularly in processing and refining. It accounts for ~ 60% of worldwide production and 85% of processing capacity.
3. Geopolitical Risks: Their spread is geographically concentrated, making it vulnerable to geopolitical risks. Geopolitical tensions, conflicts, trade disputes, or sudden policy changes in those regions can impact their supply.
   For instance, approximately 70% of the world’s reserves of cobalt are in the Democratic Republic of the Congo.
4. Dominance of a few major companies: This leads to oligopolistic (domination by a few large firms) markets.
5. Not Traded on Exchanges: Unlike oil, most critical materials are not widely traded on exchanges, and this limits opportunities to hedge against price volatility. Exchanges provide a way to hedge against price fluctuations by locking in prices through futures contracts or by buying/selling on the spot market.
6. Insufficient data: Insufficient data on the consumption, production, and trade of minerals causes uncertainty, price volatility and delays in investments.
7. Rising Import Bill: Between FY22 and FY23, there has been a 34% rise in imports of critical minerals, totaling nearly Rs. 91,000 crore.

What should India do?

Push for Expansion of MSP: Along with India, more countries in the Global South can be part of the alliance, especially critical mineral-rich African countries.
The MSP can become an international platform that reports on the status and future of critical mineral markets.

Encourage FDI in Domestic Mining: Rising foreign direct investment (FDI) will not just support businesses like battery and EV manufacturing; it will also bring the expertise of international mining firms to aid in exploring critical minerals for the country’s benefit.

 Question for practice:

“Critical Minerals, which have a huge bearing on a country’s economy, security and geopolitics, is a sector fraught with challenges”. Elaborate.