Budget 2024: Why Nirmala Sitharaman waived import duty on critical minerals

Critical minerals such as lithium, cobalt, nickel, tin, graphite, tungsten and even copper are the bedrock of the global economy of the future. India made a bold move on Tuesday to waive import duties for a clutch of these minerals and reduce duties on a couple of others. 

Import duty ranging from 2.5% to 10% was waived on 26 minerals and was reduced on two minerals from 5%-7.5% to 2.5%. Here is why it's a big deal.

What are critical minerals?

Critical minerals are those that are essential for economic development and national security. However, the lack of their availability or the concentration of resources, extraction or processing in select geographies may lead to supply chain vulnerability and disruption.

Globally, about 69 elements are considered critical by countries including Australia, the US, Canada, the UK, Japan and South Korea. India carried out a three-stage screening process in 2022 and classified 30 out of 69 minerals as critical.

The classification is a factor of levels of economic development, industry requirements, national interests and security concerns, technology, market changes and natural resource endowment.

Does India produce any critical minerals?

Currently, India does not produce 14 of the 30 critical minerals including lithium, cobalt, bismuth and tungsten, but there is potential and the technology to produce or to scale up the production of at least 10 others. 

In some cases like gallium --needed for electronic circuit boards, LED devices or solar panels –  or hafnium, which is used in computers and other electronics, these are byproducts of other mineral processing or extraction. Domestic production of copper concentrate meets less than 5% of the requirement, while Vedanta has a nickel and cobalt plant at Goa. 

The country also produces 59,000 tonnes of silicon, making it the 12th-biggest producer in the world. There are significant reserves of phosphorus and potash in Rajasthan, Madhya Pradesh, Jharkhand and Uttar Pradesh and titanium in the southern states. ​

Why are these minerals important?

Critical minerals are the foundation on which modern technology is built. The world needs critical minerals to build products from solar panels to semiconductors, and wind turbines to advanced batteries for storage and transportation.

Without them, energy transition is a pipe dream for any economy. This makes it imperative for countries to secure these mineral resources or scale up domestically available resources.

India’s future economic prosperity will depend on how well the country can use its vast energy and mineral resources to play to its strengths, and how well it can adapt to follow the global market shift towards zero emissions.

“Processed critical minerals will be key input materials for many components, and exemption of customs duty will reduce the costs of processed minerals and increase the competitiveness of the final product,” said Rishabh Jain, senior programme lead at the Council on Energy, Environment and Water.

How does the duty waiver help?

Critical minerals are a relatively scarce commodity compared with the more mainstream steel and aluminium, which also makes them more expensive. This in turn makes every product they go into pricier.

India's net zero emission ambitions have led to an expansion of renewable energy technologies and demand for critical minerals has zoomed. Lithium-ion imports, for example, have shot up from $94 million in 2014-15 to almost $3 billion in 2023-24. 

By 2050, demand for lithium in India is expected to grow from 1,634 tonnes in 2022 to between 60,000 and 93,000 tonnes by 2050. While India is scouting for resources locally, even developing those that are proven will take years.

Also read: PLI scheme eyed for critical minerals

Additionally, these minerals need advanced processing facilities--also an area where India lags behind. The duty waiver will help to keep prices in check while encouraging the domestic processing industry, which is likely to play as critical a role as having the raw material itself in times to come.

“The capabilities to process the critical minerals domestically are limited currently, and the announced Critical Minerals Mission aims to develop the ability to procure and process the minerals. Additionally, India is auctioning critical minerals mines, and it may take 5 to 10 years to start production,” said Jain.

He said once the mines start production, India should revisit the customs duty to ensure parity between imported and domestically mined minerals. 

“Until then, the reduction in customs duty will kickstart the much-needed critical mineral processing industry, which is pivotal for the growth of India's manufacturing sector,” Jain said.