Last Updated:January 16, 2026, 20:16 IST

India holds an estimated 6-8% of global rare earth reserves but instead of exporting value-added products, the country largely exports concentrates and imports finished components

China controls around 70% of global rare earth mining and nearly 90% of refining and processing capacity. (Representational image)

Major global powers are investing billions of dollars to secure the supply chain of critical minerals, particularly rare earths, to cut their dependence on China. Against this backdrop, India is expected to move beyond policy intent and announce concrete measures on mining, processing and downstream manufacturing of rare earths in Budget 2026.

India holds nearly 6-8% of the world’s rare earth reserves, estimated at about 6.9 million tonnes, yet its share in global production is less than 1%. The contrast is stark. Despite sizeable reserves, India has failed to convert this advantage into strategic strength. The key question is whether Budget 2026 can translate this momentum into a full-fledged rare earths push and meaningfully reduce India’s dependence on China in what is fast emerging as the decade’s most critical resource contest.

Oil wells shaped global geopolitics in the 20th century. In the 21st, advanced electronics, electric vehicles (EVs), defence systems and the semiconductor industry depend almost entirely on rare earth minerals. Without these 17 elements including neodymium, dysprosium and lanthanum, wind turbines cannot spin and precision-guided missiles cannot function. Securing rare earth supplies has therefore become a strategic imperative for India. Major economies have already moved decisively. The European Union has committed €3 billion to cut reliance on China, while the United States is forging new mineral alliances and building industrial ecosystems.

China’s dominance

According to an ET Now report, China’s dominance in the sector is both overwhelming and unsettling. China controls around 70% of global rare earth mining and nearly 90% of refining and processing capacity. Last year, when China imposed export restrictions on seven key rare earth elements, global automobile and defence supply chains were jolted.

India’s efforts

India has initiated steps to reduce import dependence through the National Critical Mineral Mission (NCMM). However, industry leaders and policy experts argue that Budget 2026 must go further by lowering risks for private investment. The expectation is not limited to subsidies; the industry is seeking a comprehensive ecosystem that enables private capital to participate meaningfully. This would require long-term financing, targeted tax incentives, assured offtake arrangements and incentives across the value chain. Without these measures, India risks remaining stuck at the policy stage while global competitors race ahead.

Government’s expectations

China’s strength does not stem from cheap labour alone, but from decades of process engineering expertise and state-backed price controls. Experts say India must draw lessons from countries such as Australia and Japan, where governments actively partner with private firms to build strategic stockpiles. Market participants point to four key areas where government action is critical:

1. Financial incentives and expansion of PLI: The existing Rs 7,280-crore production-linked incentive (PLI) scheme for magnets is seen as a positive step, but experts say it must be extended upstream to cover oxide and metal manufacturing. Without domestic production of raw metals, magnet manufacturing in India will struggle to remain cost-competitive.

2. Tax holidays and long-term financing: Rare earth projects have long gestation periods, often taking years to reach profitability. The budget is expected to consider a 10 to 15-year tax holiday and access to low-interest, long-tenure loans to attract investors.

3. Plug-and-play hubs, on the lines of semiconductor clusters: The government is being urged to develop infrastructure hubs, particularly in coastal regions, with shared processing facilities. Such hubs could significantly lower costs for small and mid-sized developers.

4. Regulatory reforms: Industry has called for easing restrictions on monazite by delinking it from stringent nuclear regulations, improving transparency in commercial mining, and offering strategic relaxations under Coastal Regulation Zone (CRZ) norms.

Vedanta Resources CEO Deshani Naidu has said the government’s focus on critical minerals under the NCMM is providing much-needed impetus. Securing metals and minerals, she noted, is essential for India’s infrastructure build-out and energy transition.

Abundant reserves, extremely low production

India holds an estimated 6-8% of global rare earth reserves but instead of exporting value-added products, the country largely exports concentrates and imports finished components such as magnets and motors.

Abhinav Sengupta, Associate Director at PwC India, points out that India has the reserves but lacks the ecosystem. Mining, he says, is only the first step; the real challenge lies in processing, refining and separation. India also remains weak in midstream capabilities, particularly magnet manufacturing. Delays in beach sand mining due to radioactive thorium concerns and CRZ regulations, coupled with a shortage of expertise in rare earth chemistry and process engineering, have compounded the problem.

Monazite, India’s primary source of rare earths, is widely found in coastal beach sands across Kerala, Tamil Nadu, Odisha, Andhra Pradesh, Maharashtra and Gujarat, with additional inland deposits in Jharkhand and West Bengal. However, private participation was long barred under the Atomic Energy Act, with limited opening up only beginning in 2023. Long project timelines, heavy capital requirements, a lack of deposit-specific processing technologies and uncertain returns have continued to deter investors.

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