Could Trade Policy Be Muzzling India’s Critical Minerals?

On the one hand, a zero-duty tariff structure for 25 critical minerals encourages imports at the cost of domestic processing units. On the other hand, raising tariffs risks increasing raw material costs for manufacturers. 

Concerns have been raised that the trade policy is leading to increased reliance on critical mineral imports, poor utilisation of domestic funds, inferior competitive standing, and poor development of the advanced metallurgy ecosystem in India.

The minerals that attract zero tariff include nickel, lithium, and cobalt.

NITI Aayog’s Trade Watch Quarterly has flagged concerns over the potential impact of zero-duty imports on domestic investment and capacity utilisation. 

Raising duties on raw materials before domestic supply is available at sufficient scale risks increasing input costs for domestic manufacturers.

"Tariff policy should be carefully calibrated to avoid creating an inverted duty structure, where imported high-value products face lower or zero duty while domestic manufacturers bear the cost of developing the technology and capacity in India," said an expert from the Federation of Indian Mineral Industries (FIMI).

Economist Nirupama Soundararajan said tariff treatment should differ according to the stage of the value chain. Raw materials that India cannot produce, or cannot yet produce at sufficient scale, may need to remain relatively cheap to import. 

“But tariffs on refined, semi-manufactured, and manufactured products can be calibrated where domestic capability exists,” she told The Secretariat.

She said imposing tariffs too early could increase raw material costs for downstream industries. Meanwhile, reducing the costs of high-value imports while allowing them to remain more competitive than domestic products can create less incentive to develop capacity.

Right now, that points primarily to nickel.

The Case of Nickel

Nickel is a case in point. In India, it is used to produce electric vehicle (EV) batteries, stainless steel, alloys, and for electroplating.

Despite the availability of manufacturing nickel-based superalloy bars/rods in India through the technologies of Vacuum Induction Melting (VIM), Electro Slag Remelting (ESR) and Vacuum Arc Remelting (VAR), India imports these at zero duty. 

This is seen as a factor that limits domestic capacity.

India has 189 million tonnes (MT) of geological nickel resources, but no primary production. The country imports 1,174 MT, accounting for 100% import dependence.

"The reported 189 MT should be viewed as geological resources of nickel ore, and not as economically recoverable nickel metal or established reserves," the FIMI expert said.

The FIMI expert, however, pointed out that domestic nickel economics should not be compared with international nickel prices, and that mines and processing facilities take time to develop. 

He said in order to establish the recovery of lateritic material and nickeliferous material (nickel ore) at scale, the appropriate beneficiation and extraction technology should be developed. 

Odisha is the state where the resources are concentrated overwhelmingly.

A mining industry expert said that being import-dependent does not mean technology is lacking. Technology is available in the country to process nickel at advanced levels, but the capacity is small when compared to the demand. 

“It is not enough to have the technology; we may need to have sufficient commercial capacity to provide for our country’s needs, and such small scale is itself a part of the import bill,” the expert said.

Resources Are Not Supply

India’s geological resources are greater than what can be mined today. 

Copper has 1,496.9 MT of resources in comparison with 163.8 MT of reserves; graphite has 203 MT of resources against 8.5 MT of reserves. The reported resources for cobalt and lithium are 45 MT and 12.3 MT, but with no reserves. 

As a result, India is already heavily dependent on critical mineral imports. The import figures are: phosphorus 85%, copper 57%, vanadium 46%, and graphite 28%, while cobalt and lithium – like nickel - are each 100% import-dependent. 

In value terms, India imported US$ 11,846.6 million worth of copper, US$ 179.0 million of graphite, US$ 1,174.6 million of nickel, US$ 13.0 million of cobalt, and US$ 32.7 million of lithium. 

Between 2015 and 2025, import values rose at 13.7% for copper, 10.2% for graphite, 16.9% for cobalt and 5.1% for lithium.

This is where the problem with raising tariffs lies.

“If India needs an imported mineral/feedstock to run a domestic processing plant, putting a high tariff on that input could actually hurt domestic production,” Soundararajan told The Secretariat. 

Conversely, she explained, “if the input enters cheaply but a higher-value finished product also enters at zero/low duty despite domestic capability, the domestic processor/manufacturer may struggle to justify capacity investment.”

Gap Between Geology And Commercialisation

India's critical mineral deficiency starts from the time a critical mineral mine becomes operational. 

To make a discovery available for supply, the following processes need to be completed: exploration, conversion of reserves, metallurgical testing, recovery assessment, bankable feasibility and economic viability. 

The constraints are weak regulation, resource allocation, limited risk capital, poor junior exploration, technical expertise, deep-seated deposits, high royalties and auction premiums, clearances, infrastructure, financing, logistics and long gestation periods of projects.

The National Critical Mineral Mission (NCMM) aims for 1,200 exploration projects in the country and 26 overseas through public sector undertakings (PSUs) along with 24 private entities, four mineral processing parks, three Centres of Excellence, 10,000 personnel to be trained and recovery of 400 kt of critical minerals from secondary sources. 

“We have to move towards the development of some technologies indigenously, and we are working in that direction,” Keshav Chandra, Secretary, Ministry of Mines, told the Secretariat at the 60th AGM of FIMI. 

The Way Forward

India's critical mineral demand is going to spike significantly in the coming five years. 

For instance, nickel demand is expected to grow from 2,629 tonnes in 2025 to 17,492 tonnes in 2030; lithium demand is expected to grow from 58 tonnes to 13,671 tonnes, and cobalt demand growth from 17 tonnes to 3,878 tonnes. 

For minerals that are available in India, former Ambassador and senior diplomat B. Bala Bhaskar says India's focus should shift from mining to technology building, engineering capacity, mineral beneficiation, separation, refining, purification, and capacity development in the field of advanced materials.

NITI Aayog’s Trade Watch Quarterly suggests auditing the tariff and quality control regime for products with local manufacturing capacity.

“Address import and market-access pressures through targeted trade measures by strengthening FTA melt-and-pour/rules-of-origin checks, reviewing zero duty treatment and quality-control requirements for strategic alloys such as nickel-based superalloys, using product-specific tariff-rate quotas where import surges threaten domestic capacity, and introducing phased domestic-content requirements,” it said.

Industry experts believe that investment in processing activities and scale should be promoted within the country before capacity can fully substitute imports. 

Bala Bhaskar asserts that while domestic processing and value addition should be promoted, diversified overseas sourcing, overseas assets, joint ventures, long-term supply contracts and strategic stockpiles should be encouraged as well.

The government has already begun using financial incentives to build domestic critical-mineral capacity. Under the National Critical Mineral Mission, a ₹1,500-crore scheme provides capex and operational incentives to critical-mineral recyclers, with the programme running through FY2030-31.

Soundararajan, however, said, “Subsidies come with a sunset clause." She believes that support should have a time limit and measurable capacity-building results and that tariffs should be reviewed once that capacity is reached.

Tariffs Alone Cannot Solve A Problem

No improved tariff system, however, can produce minerals that India is not able to produce in large quantities.

Bala Bhaskar said, "The ultimate goal should not be 'self-sufficiency in minerals', which may not be practical or cost-effective, but 'strategic resilience' and 'technological capability' in the most critical segments of the value chain.”

The FIMI expert similarly argues for a competitive, resilient and diversified domestic value chain with assured international supply. "The objective should not be import substitution at any cost, but building a competitive, resilient, and diversified domestic value chain while maintaining access to reliable international supplies."

"Policy should address the entire value chain rather than relying on tariffs alone."

Tariffs are ineffective to eliminate structural dependence where the mineral is not available domestically in adequate amounts. Imports will therefore be essential, and diversified sourcing, trade pacts and foreign mineral investment will be essential complements to domestic investment, said Soundararajan.

The bigger goal, said Bala Bhaskar, is value addition: "The strategy should thus be to add value along the mineral-to-product chain progressively and not just to extract minerals.”