The Union Cabinet’s recent decision to amend royalty rates for key critical minerals is expected to attract more bidders in upcoming auctions. However, the Global Trade Research Initiative (GTRI) has cautioned that the move will not deliver strategic gains unless India simultaneously builds domestic processing capacity. The think tank’s concerns highlight the complexities involved in achieving self-reliance in critical minerals.
## Shifting to Ad-Valorem Royalty Structure: A Welcome Move
The shift to a low 1-4 per cent ad-valorem royalty structure for minerals such as graphite, zirconium, rubidium, and caesium is a welcome step aimed at boosting exploration and production. The earlier per-tonne royalty regime had been viewed as a deterrent for miners, as it did not account for the fluctuating prices of these minerals. By adopting an ad-valorem royalty structure, the government is aligning India’s royalty rates with global practices, making it more attractive for mining companies to operate in the country. The change is expected to increase the participation of miners in upcoming auctions, potentially leading to higher mineral extraction.
## India’s Critical Mineral Processing Challenges
However, GTRI notes that India’s challenge extends far beyond mining. Even with increased extraction, the country lacks the ability to refine these minerals into the high-purity inputs required for batteries, electronics, optics, and advanced manufacturing. For instance, while India has some graphite-upgrading capability, thanks to firms like Epsilon Advanced Materials and Graphite India, the country is still heavily import-dependent for higher-grade graphite used in battery anodes. The lack of domestic processing capacity for critical minerals is a significant concern, as it leaves India’s downstream industries vulnerable to supply chain disruptions and price volatility.
### Limited Domestic Capacity for Zirconium and Rare Minerals
For zirconium, domestic output is limited to beach-sand zircon, with virtually no capacity to convert it into the refined compounds needed by electronics and specialty alloy manufacturers. The gaps are even wider in the case of rubidium and caesium, where exploration is still in the early stages, and India has no processing infrastructure for producing high-purity salts or metals used in a range of strategic technologies. This highlights the need for India to develop its domestic processing capabilities to ensure a stable supply of these critical minerals.
## Building Domestic Processing Capacity: The Need of the Hour
GTRI stresses that without a comprehensive ecosystem, including refining, purification, and advanced material processing, India’s downstream industries will continue to rely on imports, especially from China, which dominates the global value chain for these minerals. The think tank argues that true self-reliance in electric vehicles, semiconductors, and other high-tech sectors will require the government to pair royalty reforms with a parallel push for building domestic processing plants, incentivising private investment, and creating integrated value chains rather than just expanding mining activities.
## Way Forward
The Cabinet’s announcement is a step forward, but its impact will depend on swift rollout, inter-agency coordination, and substantial investment to close India’s critical-mineral processing gap. To achieve this, the government needs to adopt a holistic approach that addresses the entire value chain, from mining to processing and manufacturing. By doing so, India can reduce its dependence on imports, create new opportunities for domestic industries, and enhance its global competitiveness in the critical minerals sector. Ultimately, a comprehensive strategy that combines royalty reforms with domestic processing capacity building will be crucial in unlocking the full potential of India’s critical mineral resources.
