Rare earth reserves remain largely untapped due to regulatory, capacity constraints

The country holds the world’s third-largest reserves of rare earth elements, estimated at around 6.9 million tonnes of rare earth oxides, but its production remains far below its geological potential, constrained by long-standing structural, regulatory and technological bottlenecks.

Only China, with reserves of about 44 million tonnes, and Brazil, with 21 million tonnes, rank ahead of India in terms of deposits. Yet in 2024, India produced just 2,900 tonnes of rare earth elements, placing it seventh globally and accounting for less than 1% of total worldwide output.

The gap between reserves and production has become more pronounced as global supply chains face stress following tighter export controls imposed by China this year.

Global demand rises as India’s output stagnates

Rare earth elements, a group of 17 metals including neodymium, dysprosium and lanthanum, are critical inputs for electric vehicles, renewable energy systems, consumer electronics and defence equipment.

Global demand rose by about 15% this year, driven by the energy transition and growing geopolitical tensions. China continues to dominate the sector, producing roughly 270,000 tonnes annually, more than 70% of global supply, while controlling close to 90% of refining and processing capacity.

By contrast, India’s production has seen limited growth, with output projected at around 3,200 tonnes this year. The slow pace has left the country highly dependent on imports, particularly for downstream applications such as permanent magnets.

Atomic regulations, centralised control limit mining

India’s rare earth resources are concentrated mainly in monazite-rich beach sands along the coasts of Kerala, Odisha and parts of Tamil Nadu. Mining these deposits is complicated by the presence of thorium, a radioactive element subject to strict atomic energy regulations.

Exploration is overseen by the Atomic Minerals Directorate for Exploration and Research, while production is primarily controlled by Indian Rare Earths Limited, a public sector enterprise that retains a near-monopoly in the sector. Private participation remains limited due to licensing complexities and environmental approval requirements.

Officials acknowledge that this centralised structure, originally intended to protect strategic minerals, has resulted in slow project execution and capacity constraints.

Environmental and processing challenges persist

Rare earth extraction in India is often treated as a by-product of beach sand mining rather than as a strategic activity in its own right, leading to fragmented regulatory oversight. Environmental concerns, including coastal erosion and groundwater contamination, have further delayed projects.

This year, a proposed expansion of the Manavalakurichi mine in Tamil Nadu faced protests and legal challenges, halting progress. At the same time, India lacks large-scale advanced separation and refining facilities, forcing producers to export raw concentrates for processing, largely to China, and re-import finished materials at higher cost.

A Ministry of Mines report published during the year noted that extraction efficiencies in India remain below 50%, compared with 80–90% achieved by Chinese producers.

China’s export curbs expose India’s import dependence

Supply risks intensified in June when China imposed restrictions on exports of rare earth magnets, citing environmental and national security considerations. The move led to price increases of up to 30% for key materials such as neodymium and disrupted supply chains in India.

The impact was felt across the electric vehicle sector, where manufacturers rely heavily on rare earth-based permanent magnet motors. Automakers, including Tata Motors and Mahindra, flagged production disruptions during the year, even as India targets 30% electric vehicle adoption by 2030.

India currently imports about 95% of its rare earth requirements, with the annual import bill exceeding $2 billion.

Government steps to boost domestic capacity

In response, the government announced an incentive package worth Rs 7,300 crore early this year aimed at encouraging domestic mining, processing and magnet manufacturing. Measures include financial support for exploration, research into recycling technologies and collaboration with countries such as Australia and Japan under the Quad framework.

Pilot projects in Hyderabad focusing on recovering rare earth elements from electronic waste are underway, with officials estimating potential recovery of up to 500 tonnes annually by 2027.

Industry participants, however, continue to flag delays linked to environmental clearances and regulatory approvals. Mining stocks fell sharply in December amid concerns over rising input costs and project timelines, even as global efforts to diversify supply chains away from China gather pace.