Royalty Rationalisation for Critical Minerals

Context: The Union Cabinet has approved revised ad valorem royalty rates for four critical minerals — graphite, caesium, rubidium, and zirconium — with the aim of strengthening domestic mining, improving auction success, and reducing India’s dependence on imports for clean-energy supply chains.
The reform aligns with India’s broader strategy to secure critical mineral value chains essential for EVs, semiconductors, batteries, renewable energy technologies, and defence manufacturing.

Revised Royalty Rates

• Caesium: 2% of Average Sale Price (ASP) on metal content in ore
• Rubidium: 2% of ASP on metal content in ore
• Zirconium: 1% of ASP on metal content in ore
• Graphite:
  • 80% fixed carbon → 2% of ASP
  • <80% fixed carbon → 4% of ASP

The shift from fixed-rate royalty to ad valorem ensures flexibility with market fluctuations, improving the viability of low-grade mineral extraction.

Why India Needed Royalty Reform

1. High Import Dependence

India is 100% import-dependent for lithium, cobalt, nickel, and rare earth elements (REEs).
It imports 60% of graphite, a key component of anodes used in EV batteries.

2. Low Auction Success Rates

Since 2023, only 34 out of 81 critical mineral blocks (42%) found bidders — high royalty rates and pricing ambiguity made projects commercially unattractive.

3. Surging Green-Tech Demand

EV battery requirements are projected to rise 5–6 times by 2030, significantly increasing demand for graphite, zirconium, and REEs.

4. Unviable Mining under Old Rates

Fixed per-tonne royalties hurt miners during global price declines, making low-grade extraction unprofitable.

5. China-Dominated Supply Chains

China processes ~90% of the world’s REEs.
Its export controls have demonstrated the vulnerability of global clean-tech supply chains.

Structural Bottlenecks in India’s Critical Mineral Ecosystem

• Weak Exploration Capacity: <0.9% of global mineral exploration spending; far lower than Australia (~13%) or Canada (~15%).
• Limited Processing Capability: India processes <2% of global REEs; refined copper output is just 3% globally.
• High Capital & Tech Gaps: Private exploration contributes <10% of India’s total spend (vs >60% in mature mining economies).
• Skilled Manpower Shortage: <20 geologists per million population (Australia: 140+).
• Fragmented Policy Environment: Regulatory delays and unclear pricing deter bidders.

Way Forward

• Boost Exploration: Strengthen the National Mineral Exploration Trust (NMET); emulate Australia’s drilling reimbursement model.
• Domestic Processing: Introduce a PLI-style scheme for refining and processing critical minerals, similar to China’s refining clusters.
• Fast-Track Clearances: Create a unified portal integrating environment, forest, and concession approvals (Canada’s “one-window” model).
• Tech & Skills Partnerships: Collaborate with US, Australia, and Japan for mineral processing technologies and workforce training.
• Strategic Stockpiles: Establish reserves of lithium, cobalt, and REEs, similar to Japan’s JOGMEC model, to cushion supply disruptions.