India is strategically positioning itself to challenge China's dominance in the rare earth minerals sector, with Budget 2026 expected to play a crucial role in this endeavor. Rare earth elements (REEs) are essential for various high-tech industries, including electronics, electric vehicles, and defense technologies. China currently controls approximately 70% of global rare earth mining and nearly 90% of processing capacity, giving it significant leverage over global supply chains.
Strategic Importance of Rare Earths
REEs are indispensable for manufacturing high-performance magnets used in electric vehicle motors and wind turbines, clean energy, and advanced defense technologies. China's dominance in this sector poses a significant supply chain vulnerability, affecting military procurement and electric vehicle production timelines. Recognizing this, major economies are investing heavily to reduce their dependence on China.
India's Untapped Potential
India holds 6% to 8% of global rare earth reserves, approximately 6.9 million tonnes, but produces less than 1% of total global output. The country exports concentrates while importing value-added products, highlighting the need for a comprehensive strategy to harness its potential.
Budget 2026: A Defining Moment
Budget 2026 is expected to be a turning point for India's rare earth sector. Experts emphasize the need to prioritize de-risking private investment through easier financing, tax incentives, and assured offtake agreements to scale up mining, processing, and downstream manufacturing. This push is critical for meeting India's infrastructure build-out and energy transition goals.
Key Expectations from Budget 2026
- De-risking Private Investment: Long-term financing, targeted tax incentives, assured offtake agreements, and value-chain-linked incentives are crucial to attract private investment.
- Non-Ferrous Metal Mission: Announcing a broader mission covering aluminum, copper, and zinc alongside rare earths could unlock over $100 billion in investment by ensuring domestic market access.
- Dedicated Rare Earth Exploration Fund: Creating a dedicated fund to boost exploration activities.
- Incentivizing Magnet Production: Expanding the existing magnet production-linked incentive scheme to include upstream oxides and metals.
- Support for Processing and Recycling: Providing targeted support for the processing and recycling of critical minerals and rare earths is essential to reduce import dependence and strengthen India's self-reliance. This includes creating dedicated funds for mineral processing and recovering valuable materials from spent components like magnets and batteries.
Strategic Measures Beyond the Budget
- Delinking Monazite from Atomic Energy Act: Monazite, a key source of rare earths in India, is currently governed by the Atomic Energy Act, which restricts its exploitation. Delinking it could significantly boost rare earth production.
- Overseas Acquisitions: Supporting Indian companies in acquiring mineral assets abroad, especially in countries with higher political or operational risks, is crucial. Additional schemes such as insurance or contingency funds could encourage private investment.
- Collaboration with Other Nations: Partnering with countries like Australia, Russia, Argentina, Chile, and several African nations to explore rare-earth mining opportunities.
- Joining Global Initiatives: India may be invited to join initiatives such as the US-led "Pax Silica" supply chain alliance.
- Streamlining Foreign Investment: Simplifying regulations to allow more flexible collaborations with global players, including Chinese companies, while maintaining national security priorities.
Budget 2026 presents a crucial opportunity for India to implement policies that can unlock its rare earth potential and reduce its dependence on China. By focusing on de-risking private investment, supporting processing and recycling, and pursuing strategic collaborations, India can establish a robust domestic rare earth industry and secure its position in the global supply chain.
