Securing Critical Minerals for India's Defence Manufacturing: Challenges and Strategies

Drawing insights from recent geopolitical events and global dynamics, the analysis suggests strategies for diversification, technological advancement, and international collaborations to bolster the critical mineral supply chain. In doing so, it presents a roadmap for India to safeguard its defence manufacturing capabilities and consolidate its national security in an evolving global landscape.

Introduction:

India is presently the largest arms importer in the world.[1] It is actively working towards the acquisition and development of various defence equipment by constantly rising defence allocations. The ‘Make in India’ initiative aims to achieve self-reliance in defence production and reduce the overall import dependence on imports. The initiative was launched in 2014 and aims to encourage indigenous manufacturing and technological advancement in the defence sector. Apart from strengthening its own defence sector, India has also been able to export various defence platforms and equipment to other countries in recent years. There has been a paradigm shift in the exports of defence equipment to other countries. India is now exporting defence equipment to over 85 countries and has shown its improved capability in research design and development of defence equipment to the world.[2] Major exports include defence equipment like Brahmos Missiles, Advanced Towed Artillery Guns (ATAGs), Akash Missile System, Dornier-228, Mine Protected Vehicles, Simulators, Radars, PINAKA Rockets & Launchers, Body Armour, Ammunitions, Thermal Imagers, and components of Small Arms.[3] India’s defence exports have skyrocketed from Rs. 686 Crore in 2013-14 to an estimated Rs. 16000 Crore in 2022-23.[4]

As with any manufacturing sector, ensuring a secured supply chain is of utmost importance as it would reduce the reliance on imports for critical defence equipment and systems, which would make the country less vulnerable to disruptions caused by geopolitical factors or international conflicts. The manufacturing of defence equipment relies on a variety of raw materials that are crucial for the production of advanced technologies and systems. These materials are often referred to as “critical minerals” due to their importance to the defence industry and other sectors. As the Ministry of Mines has stated in its recent report, “Critical minerals are those minerals which are essential for economic development and national security, the lack of availability of these minerals or even concentration of existence, extraction or processing of these minerals in few geographical locations may lead to supply chain vulnerability and disruption.”[5] The defence sector uses a significant number of raw materials across the land, air, and sea domain. The value chain analysis of each material identifies specific geopolitical concerns and supply chain vulnerabilities. The ‘Critical Minerals Report’ has identified and classified the critical minerals depending on the criteria mainly supply risk and economic importance. Supply risk examines the concentration of global primary raw material production and sourcing at the country level, import dependence, governance issues of the source countries, recycling, substitution, trade restriction, and environmental aspects. Economic importance investigates the industrial applications, allocation of raw materials, and impact on crucial industrial sectors in case of a disrupted supply chain.

The report has identified fifteen minerals as strategic based on their role in nuclear and defence applications. The list encompasses important minerals such as titanium, Rare Earth Elements (REEs), Nickel, Rhenium, Zirconium, Hafnium, and others. These minerals serve as an essential component in the development of critical defence equipment such as submarines, missiles, aircraft, corvettes and much more. REEs are utilised in the production of powerful magnets for guidance systems in precision-guided munitions such as missiles. Titanium is used in missile casings, engine components, and aircraft frames.[6] Magnets made of neodymium and samarium are utilised in guided missile systems, unmanned aerial vehicles, bombs, propulsion systems, and other military equipment.[7] These minerals are also used in the production and development of very sophisticated defence equipment such as missile guidance systems, submarine sonar, lasers for mine detection, and missile systems. The minerals' significance can be gauged by the fact that each F-35 fighter aircraft contains 417 kilogrammes of REEs in its different components, which include electric motors, electronic warfare systems, and radars.[8] The minerals identified as critical for the defence industry are mentioned in the table below along with their usage in the defence equipment.

Table 1: Information about the application of critical minerals in the manufacturing of defence equipment

Source: The Hague Centre for Strategic Studies, “Strategic Raw Materials for Defence, Mapping European Industry Needs - HCSS,” January 10, 2023. https://hcss.nl/report/strategic-raw-materials-for-defence/.

The above data highlights the importance of critical minerals in the defence manufacturing sector. Therefore, the secure and sustainable supply of critical minerals is vital for maintaining the technological edge of a country’s defence industry.

Availability of critical minerals:

India is gearing towards increasing its stature in defence manufacturing capabilities, positioning itself as a reliable exporter of defence equipment, and enhancing its national security. To achieve self-reliance and national security, it is crucial to secure the essential minerals. Understanding the availability of important minerals is crucial for ensuring a secure supply of such materials which depends on a varied range of factors such as geological endowment, mining facilities, processing units, trade dynamics, environmental concerns, and geopolitical considerations.

Source: US Geological Survey

For securing the critical minerals value chain from exploration to recycling, certain processes need to be followed which include mapping, exploration, extraction, intermediate processing, mining, processing, and recycling. These can be divided into three categories i.e., upstream, midstream, and downstream processing. Upstream exploration includes acquisition, processing, and comprehending the geoscience information for successful exploration. The second aspect of this process is the actual mining which involves the extraction by utilising the techniques such as blasting, drilling, and excavation. Midstream processing involves refining by utilising the metallurgy technique. It involves the transformation of primary sources into intermediaries for future industrial use. Downstream processing involves the utilisation of refined minerals to produce the vital components which are used in large-scale equipment such as batteries, motors, radars, missiles, propulsion systems, unmanned aerial vehicles, and other military equipment.

Issues with the Supply chain of critical minerals:

The geographical distribution of critical minerals depicts that the minerals are not concentrated in a particular region or a country but have scattered distribution across the globe. There are significant issues with the supply chain of critical minerals. Increasing demand for critical minerals is an important issue which can impact future availability as these minerals are also heavily used in the manufacturing of green energy equipment which includes wind turbines, solar panels, components of electric vehicles, and hybrid batteries.[9],[10]

The supply chain of critical minerals has limited global players as a few countries dominate the production, processing, and refining process. The upstream and downstream processing of critical minerals depends on important factors such as domestic reserves, infrastructure, and technical expertise. For instance, REEs such as dysprosium, terbium, lanthanum, and praseodymium are majorly mined and processed in China.[11] For example, the United States transfers rare earth elements mined in the country to China for downstream processing and then purchases the refined elements.[12] Other issues include some geopolitical challenges which impact the overall supply security of these minerals. Russia's involvement in the supply chain for titanium was recently impacted due to the ongoing conflict between Russia and Ukraine which led to an increase in the price of the metal.[13]

Environmental degradation is also an important factor in the extraction and processing of critical minerals. In the case of some minerals, the process even leads to the generation of radioactive waste. For instance, the refinement of REEs has adverse impacts on the environment, this restrains a bulk of countries from mining and refining these elements. However, China, which has lax environmental regulations and a sizable inhabitable desert, saw this as an opportunity and has established a hegemonic position in the extraction and refinement of REEs.[14] The hegemony in either extraction or processing can be used as a weapon by the exporting country in case of a conflict, trade war, or any adverse scenario for influencing other countries’ actions. Heavy dependence on a limited number of sources can increase the risk of supply disruptions which can in turn cause rapid price fluctuations impacting the production costs, profitability, and the entire sector.

Furthermore, given the extremely sensitive nature of substituting essential minerals in the defence industry, it is critical to safeguard the supply chain in terms of both short-term and long-term supply security. Short-term supply security depends on a particular mineral's diversification base and identifying potential supply chain bottlenecks. On the other hand, long-term supply security is dependent on the identification of logistical issues along with potential geopolitical challenges. The supply risk analysis needs to incorporate the pre-existing geopolitical issues and the stability of a supplier state.

The COVID-19 pandemic and the Russia-Ukraine conflict have highlighted the vulnerabilities of the supply chains that are highly import-dependent and lack diversity. Critical minerals supply chains are also susceptible to risks such as a lack of diversity and lack of capacity. With an expanding market, demand for critical minerals will rise, potentially driving up the prices. Similarly, a lack of diversity can lead to the formation of bottlenecks, which can cause disruption. Supply disruption of critical minerals can affect the defence industry’s competitiveness and readiness at the operational level. The timing of disruption is uncertain and therefore, the damage inflicted is also difficult to predict. Lack of direct access to material input can make it difficult to figure out and shift the supply chain to alternate suppliers. More research needs to be conducted in order to nullify the impact of any such disruption.

Supply disruption can also occur in case of an export ban from the source country. The country having a hegemony in the upstream or downstream processing of critical minerals can use this as a weapon. For instance, China used its monopoly in the REEs as a deterrence against the importing countries to achieve its strategic goals. A Chinese fishing boat was captured in 2010 near the Japan-administered Senkaku islands, over which China claims sovereignty. The commander of the Japanese vessel arrested the captain of the Chinese fishing boat, and China cut off the supply of REEs to Japan in retribution. Due to trade disruption, the price of these crucial metals increased ninefold.[15] This monopoly was again utilised by China during the trade war between China and the United States in 2019. The United States is dependent on Chinese imports to fulfil the demand for REEs, exploiting this vulnerability of the US and seizing an advantage out of the same, a tariff of 25% was imposed on the export of REEs.[16]

Another important crucial factor is the negative environmental impact resulting from the mining and processing of critical minerals. The mining activities cause chemical erosion which eventually leaches into the water bodies and pollutes the groundwater as well. The byproduct of mining activities is mostly toxic in nature, which poses a risk to environmental health.[17] For instance, the mining operation produces 9,600-12,000 cubic metres of waste gas, one ton of radioactive residue, 75 cubic metres of wastewater, and 13kg of dust for every ton of rare earth produced. [18] Bayan-Obo, the largest and most infamous REEs mine in the world produces a tailing pond of over 70,000 tons of radioactive thorium waste which is seeping into the groundwater and will probably hit the Yellow River which is the lifeline for the people living in that area.[19]

In the Indian context, the supply of these minerals is constrained due to the geological availability within the domestic boundaries. There are also inefficient policy measures and a lack of suitable technological advancement in the domain of mapping, extraction, and processing. Domestic supply chain glitches can arise from the issues such as poor domestic reserves, poor or absent legislation, governance problems, and adverse social and environmental impact.[20] India is heavily dependent on other countries for securing its critical minerals needs which can create vulnerability as discussed earlier. For instance, the country is entirely reliant on imports of essential minerals such as lithium, nickel, vanadium, niobium, and rhenium.[21] This heavy reliance on imports creates vulnerability in terms of supply disruptions, geopolitical factors, and price fluctuations.

Policy Options and Future Considerations

Securing the supply chain of essential minerals for defence technology is a multifaceted challenge that necessitates an all-encompassing and strategic strategy. To improve the resilience and reliability of essential mineral supply chains, governments and industry need to develop a policy framework encompassing both short and long-term strategies. The policy needs to have strategies for risk mitigation and resolution. Before a disruption occurs, India must get towards a more robust economic position. The policy's time to impact decides whether it can be effective in a reactionary posture, that is after the disruption has occurred. If it takes a decade or more to establish a domestic mine, it makes no sense to focus resources on developing new production. Another policy measure can include the development of stockpiles which could survive the industry for a period ranging from a few weeks to months.

Developing a proactive policy which focuses on critical minerals should be applicable across materials, for instance, the policy options need to reduce the supply chain risk which can be tailored concerning each critical mineral, depending on its geographical availability and refining capacity. Policies such as stockpiling need to be updated to account for the capacity, capability, and industrial environment in an attempt to increase the robustness of the vital material supply chain. The need of diversifying the supply chain needs to be stressed more in the policy imperatives. The point in the supply chain at which the focused approach needs to be taken depends from one mineral to another. Some mineral supply chain requires the build-up of domestic mining units, some require investment in the refining process, and some requires diversification in the acquisition process.

Other policy alternatives include monitoring critical minerals markets and forging new partnerships. Additional policy choices could include boosting domestic mining of sources that are not currently completely utilised but have the potential for further growth. India can sign preferred supply agreements with friendly nations to ensure the uninterrupted supply of critical minerals. Investment in the mining or processing units in both greenfield and brownfield projects would also assist in the diversification of both upstream and downstream processing units. The success of policy interventions is dependent on timing i.e., the time to survive and recover by the defence industrial sector, the policy action's time to impact, and the time required to close the production demand gap. The main conclusion of this analysis is that timing is critical as policy interventions take their own course in execution and the time needed to affect the supply chains. Accounting for policy implementation time and the country's disruption window leads us to the conclusion that the government should establish proactive policies and investments to address these essential supply chain risks today.

End Notes

[1] Stockholm International Peace Research Institute, SIPRI Yearbook 2023: Armaments, Disarmament and International Security, Summary (Solna: Sweden, 2023) https://www.sipri.org/sites/default/files/2023-06/yb23_summary_en_1.pdf

[2] Ministry of Defence, “Defence Exports Rise 23 Times " PIB, May 31, 2023, https://pib.gov.in/PressReleseDetail.aspx?PRID=1928533#:~:text=16%2C000%20Crore%20in%20FY%202022,exporting%20defence%20products%20at%20present

[3] Ibid.

[4] Pranav Dixit, “India's defence exports skyrocket to all-time high surpassing Rs 16,000 crore in FY 2022-23,” Business Today, May 31, 2023 https://www.businesstoday.in/latest/economy/story/indias-defence-exports-skyrocket-to-all-time-high-surpassing-rs-16000-crore-in-fy-2022-23-383563-2023-05-31

[5] Ministry of Mines, Critical Minerals for India: Report of the Committee on Identification of Critical Minerals (New Delhi: India, 2023) https://mines.gov.in/admin/storage/app/uploads/649d4212cceb01688027666.pdf

[6] Stew Magnuson, “Some Essential Reading on Strategic Minerals”, National Defense, January 29 2018, https://www.nationaldefensemagazine.org/articles/2018/1/29/some-essential-reading-on-strategic-minerals

[7] Valerie Bailey Grasso, Rare Earth Elements in National Defence: Background, Oversight Issues, and Options for Congress, Congressional Research Service, December 23, 2013 https://fas.org/sgp/crs/natsec/R41744.pdf

[8] Peter Grier, “Rare-Earth Uncertainty”, Air & Space Forces Magazine, December 21, 2017 https://www.airforcemag.com/article/rare-earth-uncertainty

[9] Critical Mineral Commodities in Renewable Energy, U.S. Geological Survey. “Critical Mineral Commodities in Renewable Energy | U.S. Geological Survey,” June 4, 2019. https://www.usgs.gov/media/images/critical-mineral-commodities-renewable-energy.

[10] Karen Smith Stegen "Heavy rare earths, permanent magnets, and renewable energies: An imminent crisis," Energy Policy, Elsevier, vol. 79 (2015), pages 1-8,“Critical Mineral Commodities in Renewable Energy | U.S. Geological Survey.” 2015 https://doi.org/10.1016/J.ENPOL.2014.12.015

[11] Claudiu C. Pavel & Evangelos Tzimas, European Commission, Raw Materials in the European Defence Industry, JRC Science for Policy Report: Raw materials in the European defence industry (Petten: The Netherlands, 2016) https://setis.ec.europa.eu/system/files/2021-02/raw_materials_in_the_european_defence_industry.pdf

[12] Sun Yu and Demetri Sevastopulo, “China Targets Rare Earth Export Curbs to Hobble US Defence Industry,” Financial Times, February 16, 2021 https://www.ft.com/content/d3ed83f4-19bc-4d16-b510-415749c032c1

[13] Ibid.

[14] Jeffery A. Green, “The Collapse of American Rare Earth Mining — And Lessons Learned”, Defence News, November 12, 2019 https://www.defensenews.com/opinion/commentary/2019/11/12/thecollapse-of-american-rare-earth-mining-and-lessons-learned/

[15] Daniel Wagner, “China, Rare Earth Minerals and Nuclear Options”, The Sunday Guardian, June 01, 2019, https://www.sundayguardianlive.com/news/china-rare-earth-minerals-nuclear-options

[16] “U.S. dependence on China's rare earth: Trade war vulnerability” Reuters, June 28, 2019 https://www.reuters.com/article/us-usa-trade-china-rareearth-explainer-idUSKCN1TS3AQ

[17] Jaya Nayar, “Not So “Green” Technology: The Complicated Legacy of Rare Earth Mining,” Harvard International Review, August 12, 2021 https://hir.harvard.edu/not-so-green-technology-the-complicated-legacy-of-rare-earth-mining/

[18] EURARE, European Commission, Health and safety issues in REE mining and processing: An internal EURARE guidance report (2014) https://www.eurare.org/docs/internalGuidanceReport.pdf

[19] Hongqiao Liu, “As China Adjusts for “True Cost” of Rare Earths, What Does It Mean for Decarbonization?,” New Security Beat, March 21, 2017 https://www.newsecuritybeat.org/2017/03/china-begins-adjusting-true-cost-rare-earths-decarbonization/

[20] 20.     Vaibhav Gupta & Karthik Ganesan, Council on Energy Environment and Water, CEEW Policy Brief, India’s Mineral Resources: A Trade and Economic Analysis (2014) https://www.ceew.in/sites/default/files/CEEW-Indias-Critical-Mineral-Resources-Policy-Brief-Jun14.pdf

[21] Australia-India Business Exchange, Unlocking Australia-India Critical Minerals Partnership Potential: India Critical Minerals Demand Report (Commonwealth of Australia, 2021) https://www.austrade.gov.au/ArticleDocuments/1358/Unlocking-Australia-India-critical-minerals-partnership-potential.pdf.aspx?Embed=Y

Pic Courtsey-Surya Prakash at unsplash.com

(The views expressed are those of the author and do not represent views of CESCUBE.)