Why rare earths could be India’s new oil

With global supply chains realigning and Quad momentum rising, India must pivot from raw materials exports to value-added critical minerals leadership.

Rare earths are today at the heart of industrial ambition and geopolitical risk. As the race to clean-tech and rapid green energy transitions gain momentum, China’s control of 85% of global refining capacity — and its recent export curbs — illustrate how strategic dependencies pose the danger of undermining economic resilience.

A new Quad Critical Minerals Initiative, launched in Washington earlier this month by the United States, India, Japan, and Australia, tells us just how central these minerals have become to global security and economic resilience. The initiative aims to diversify critical mineral supply chains and lower dependence on single-country sources like China.

In a busy month for global policy watchers, Prime Minister Narendra Modi underscored India’s serious intent to ensure its self-reliance in critical minerals, including rare earths at the BRICS summit in Rio de Janeiro. In line with India’s long-stated concerns, he called for global collaboration to secure supply chains for critical minerals and cautioned against their weaponisation by any one country.

As a key player in the global rare earth ecosystem — with the world’s fifth-largest rare earth reserves but limited processing capacity to match — it is less a supply issue and more a structural economic vulnerability.

India’s rare earth sector today is nascent — not in geology, but in infrastructure and strategy. Despite vast strategic mineral resources, India still does not possess domestic capabilities for separation, purification, and production of value-added products, i.e., permanent magnets, needed in electric vehicle motors, wind turbines, and defence systems. India has so far relied on importing finished products while exporting raw ore, to continue a value imbalance that reflects its broader industrial story.

But that could soon change if India’s multi-pronged critical minerals strategy of the past few years and urgent policy decisions this year are any indication — perhaps even signalling its intent to lead a much-needed global rare earths reset.

More than just symbolic action, the government’s decision last month to halt a long-standing export deal with Japan and give priority to domestic rare earth requirements signals serious intent to shift from its position as a supplier of raw materials to becoming a hub for manufacturing and innovation.

The National Critical Mineral Mission’s forthcoming ₹5,000-crore incentive scheme to support downstream value chains and rare earth production is encouraging. This focus on magnets, coupled with a ₹1,500 crore recycling initiative, can potentially reshape India’s rare earth industrial base.

Yet, the efficiency of a policy is irrevocably linked to the context in which it is crafted and the way it is implemented. Such announcements, though well-intentioned, can often fall off the cliff without strategic clarity, concerted investment, technological know-how, and supply chain resilience.

India must develop two to three world-class refining and magnet manufacturing clusters with concessionary land, electricity, and R&D benefits over and above regular PLI schemes. The government’s plan to soon launch a Rs 1,345-crore financial incentive scheme to boost domestic manufacturing of rare earth magnets is indeed a step in the right direction.

Rather than chasing multiple sectors, we must narrow our industrial focus and reposition PLI and ‘Make in India’ towards rare earth-related sectors such as defence electronics and EV parts for higher ROI. The not-so-obvious upside is that such as narrow focus could well provide a second wind to both missions.

A sovereign investment fund for mining, recycling, and tech innovation can equally strengthen existing funding mechanisms. India must also continue to strengthen global partnerships — like with Quad, the EU, Africa — to diversify supply chains and collaborate on technology. Finally, Indian firms with stronger-than-ever balance sheets and cash reserves in decades must invest deeply across the global rare earth value chain.

This is India’s moment — not just as a rare earth power in volume, but in value. That means owning more of the value chain, shaping more technology, and embedding itself in the geopolitical calculus of a world reordering around clean energy. This could well mark the beginning of a rare alignment between policy, capital, and ambition.

(Lloyd Mathias is a business strategist and independent director; and Gaurav Bhagowati is a public policy and corporate reputation adviser)

Disclaimer: The views expressed in this article are the authors' own. They do not necessarily reflect the views of DH.