India Revises Critical Minerals Royalty Rates Boosting Green Tech

India’s Union Government recently approved new royalty rates for four vital minerals – graphite, caesium, rubidium, and zirconium. These minerals are crucial for green energy technologies such as electric vehicles and renewable energy systems. The revision aims to encourage domestic mining, reduce import dependency, and protect India from global supply-chain disruptions, especially amid China’s export restrictions.

Shift to Ad Valorem Royalty System

The royalty on graphite has moved from a fixed per-tonne fee to an ad valorem system. This means royalties are now charged as a percentage of the mineral’s sale value, not a flat rate. High-grade graphite (80% or more fixed carbon) attracts a 2% royalty on the Average Sale Price (ASP), while lower-grade graphite faces 4%. Caesium and rubidium royalties are set at 2% each, and zirconium at 1%, down sharply from the earlier uniform 12% rate. This approach links royalties to market prices, making them responsive to demand and supply changes.

Role of Average Sale Price and Pricing Transparency

ASP is the weighted average ex-mine price of minerals sold in the open market. The Indian Bureau of Mines (IBM) publishes these prices monthly. For minerals lacking domestic pricing data, IBM uses US Geological Survey prices converted into Indian rupees. This transparent pricing mechanism helps bidders and producers understand market dynamics and plan investments more effectively.

Strategic Importance Amid Global Supply Risks

China controls about 90% of global critical mineral processing and has imposed export restrictions, disrupting supply chains. India’s demand for critical minerals is set to rise due to its renewable energy and electric vehicle ambitions. Currently, India depends entirely on imports for key minerals like cobalt, lithium, nickel, and rare earth elements. Revised royalty rates aim to attract more bidders in auctions and unlock new mineral reserves, including lithium and rare earths.

Challenges in Mining and Processing Capacity

Despite rich mineral resources, India faces structural challenges. Mining and processing suffer from weak regulations, limited private investment incentives, and technical constraints. Only 34 of 81 auctioned blocks have attracted bidders since 2023. Processing capacity is insufficient, especially for rare earth elements, which are vital for advanced manufacturing. India’s copper processing accounts for only 3% of global output. Without expanding processing capabilities, mining growth alone cannot achieve self-reliance in strategic sectors.

Policy and Market Implications

The royalty revision is a market-driven reform expected to improve auction participation and make mining commercially viable even during price downturns. Lower and predictable royalties reduce risks for investors. However, experts stress that royalty changes must be complemented by regulatory reforms, technical capacity building, and infrastructure development to create a robust critical minerals ecosystem.

Future Outlook for India’s Critical Minerals Sector

India’s revised royalty policy signals a strategic push to secure supply chains for green technologies. Continued reforms and investments in mining and processing are essential to meet growing domestic demand. Developing a full domestic value chain from extraction to advanced material production remains a priority to support India’s energy transition and technological ambitions.

Questions for UPSC:

1. Critically discuss the role of critical minerals in India’s renewable energy and electric vehicle sectors and the challenges in their domestic production and processing.
2. Examine the impact of global supply chain disruptions on India’s mineral import dependence and analyse the government’s policy measures to address these vulnerabilities.
3. Estimate the importance of regulatory reforms and technological capacity building in enhancing India’s critical mineral mining sector and discuss their implications for economic development.
4. Point out the significance of developing a domestic processing ecosystem for critical minerals and how it affects India’s strategic autonomy in advanced manufacturing and green technologies.

Answer Hints:

1. Critically discuss the role of critical minerals in India’s renewable energy and electric vehicle sectors and the challenges in their domestic production and processing.

1. Critical minerals like graphite, lithium, cobalt, rare earths are essential for batteries, solar panels, EVs, and advanced electronics.
2. India’s renewable energy and EV ambitions sharply increase demand for these minerals, currently met largely through imports.
3. Domestic production is constrained by weak regulatory framework, limited private investment incentives, and technical challenges in mining.
4. Processing capacity is nascent; India imports refined minerals due to low domestic processing scale and expertise.
5. Only 34 out of 81 auctioned mineral blocks attracted bidders, indicating structural and market bottlenecks.
6. Without scaling mining and processing capabilities, India risks supply-chain vulnerabilities and dependency on imports.

2. Examine the impact of global supply chain disruptions on India’s mineral import dependence and analyse the government’s policy measures to address these vulnerabilities.

1. China controls ~90% of global critical mineral processing and imposed export restrictions, disrupting global supply chains.
2. These restrictions exposed India’s heavy import dependence on minerals like cobalt, lithium, nickel, and rare earths.
3. The government revised royalty rates to encourage domestic exploration and production, reducing import reliance.
4. Shift to ad valorem royalty system ties royalties to market prices, improving investment attractiveness and auction participation.
5. Policy aims to diversify supply sources, unlock domestic reserves, and build resilience against geopolitical risks.
6. However, royalty reforms alone are insufficient without broader regulatory and infrastructure support.

3. Estimate the importance of regulatory reforms and technological capacity building in enhancing India’s critical mineral mining sector and discuss their implications for economic development.

1. Regulatory reforms can simplify mining approvals, improve transparency, and incentivize private sector participation.
2. Technological capacity building is crucial for exploring deep-seated deposits and efficient mineral extraction.
3. Improved regulations and technology reduce operational risks and costs, attracting more investors and bidders.
4. Enhanced mining sector can decrease import dependence, improve trade balance, and generate employment.
5. Development of critical minerals supports growth in strategic sectors like EVs, electronics, and renewable energy.
6. Overall, reforms and capacity building are vital for sustainable economic development and strategic autonomy.

4. Point out the significance of developing a domestic processing ecosystem for critical minerals and how it affects India’s strategic autonomy in advanced manufacturing and green technologies.

1. Processing converts raw minerals into high-purity materials essential for batteries, semiconductors, optics, and advanced manufacturing.
2. India’s current processing capacity is limited; e.g., only 3% share in global copper refining despite sizable smelting capacity.
3. Dependence on imported processed minerals risks supply disruptions and increases costs for domestic industries.
4. Developing processing ecosystems enhances value addition, creates skilled jobs, and strengthens industrial base.
5. Domestic processing is key to achieving self-reliance in EVs, electronics, and strategic manufacturing sectors.
6. It reduces vulnerability to geopolitical risks and aligns with India’s energy transition and technological ambitions.