Rare earths: From China dependence to self-reliance — what Budget 2026 must deliver

India's burgeoning ambition to become a global manufacturing hub and a leader in sustainable energy is inextricably linked to its access to critical raw materials, among which rare earth elements (REEs) stand paramount. The current focus on Budget 2026 and the strategic intent to reduce dependence on China for rare earths represents a pivotal moment in India's economic and geopolitical strategy.

**Background Context and Global Dynamics:**

Rare earth elements are a group of 17 chemically similar metallic elements crucial for a vast array of high-tech applications, ranging from smartphones and electric vehicles (EVs) to wind turbines, defence systems, and medical imaging. Despite their name, rare earths are not particularly rare in the Earth's crust; however, finding them in economically viable concentrations and processing them into usable forms is complex, capital-intensive, and environmentally challenging. Historically, the global supply chain for rare earths has been dominated by China, which accounts for over 60% of global mining and an even larger share (around 90%) of processing capacity. This near-monopoly grants China significant geopolitical leverage, as demonstrated by past export restrictions.

India, like many other nations, is heavily reliant on China for its rare earth needs. This dependence poses a significant vulnerability, particularly as India pursues ambitious infrastructure development under schemes like the National Infrastructure Pipeline and accelerates its energy transition goals, including a target of 500 GW of renewable energy capacity by 2030 and widespread EV adoption. The current strategic push is a direct response to this vulnerability and an effort to secure the raw materials essential for its future growth and technological sovereignty.

**What Happened and India's Strategic Shift:**

Ahead of Budget 2026, India is signalling a strong intent to treat rare earths as a critical strategic test case for achieving self-reliance. The primary objective is to de-risk private investment in the entire rare earth value chain – from exploration and mining to processing and downstream manufacturing. Experts and industry stakeholders are advocating for specific policy interventions in the upcoming budget. These include easier access to financing, attractive tax incentives to encourage domestic and foreign investment, and, crucially, assured offtake agreements. The latter would provide market certainty for producers, mitigating the significant upfront investment risks associated with rare earth projects. The government's 'Make in India' and 'Aatmanirbhar Bharat' initiatives provide the overarching framework for this strategic pivot.

**Key Stakeholders Involved:**

Several entities are central to this initiative. The **Government of India**, through ministries like the Ministry of Mines, Ministry of Commerce & Industry, and NITI Aayog, is responsible for policy formulation, regulatory frameworks, and strategic direction. **Public Sector Undertakings (PSUs)**, most notably Indian Rare Earths Limited (IREL), established in 1950, have historically played a role in rare earth mining and processing in India. However, their scope needs significant expansion. The **Private Sector**, both domestic and international, is expected to be the primary engine for scaling up operations, bringing in capital, technology, and expertise. International partners, particularly from countries like the USA, Japan, and Australia, which are also seeking to diversify their rare earth supply chains away from China, could play a collaborative role through technology transfer and joint ventures.

**Significance for India:**

Achieving self-reliance in rare earths holds immense significance for India. **Economically**, it promises to reduce import dependence, save foreign exchange, create high-skill jobs, and foster a robust domestic manufacturing ecosystem for advanced technologies. **Geopolitically**, it enhances India's strategic autonomy, reduces vulnerability to external supply shocks, and strengthens its position in global supply chain resilience efforts. For **National Security**, rare earths are vital for modern defence equipment, making domestic availability critical. Furthermore, this initiative is indispensable for India's **Energy Transition** goals, as REEs are key components in renewable energy technologies and electric vehicles, critical for combating climate change and achieving sustainable development.

**Historical Context and Policy Framework:**

India has known rare earth reserves, primarily monazite sands along its coastlines, which IREL has been processing for decades to extract thorium and light rare earths. However, the focus was not on developing a comprehensive rare earth value chain. The renewed push is a recognition of the changing global geopolitical landscape and technological advancements. The regulatory framework for mining in India primarily stems from the **Mines and Minerals (Development and Regulation) Act, 1957 (MMDR Act)**, which has undergone several amendments to liberalise the sector and promote private participation. The **National Mineral Policy 2019** further emphasizes sustainable mining, optimal utilisation of mineral resources, and attracting private investment. While rare earths are currently classified as 'atomic minerals' under the MMDR Act, which restricts private sector participation, there is a strong push to declassify non-radioactive rare earths to allow broader private involvement. **Article 297** of the Constitution vests ownership of minerals in territorial waters and continental shelf in the Union, while **Entry 54 of the Union List in the Seventh Schedule** gives the Parliament power over the regulation of mines and mineral development, especially for minerals of national importance. Future policies might also leverage schemes similar to the Production Linked Incentive (PLI) schemes to boost downstream rare earth manufacturing.

**Future Implications:**

If successful, India could significantly diversify its critical mineral supply chain, becoming a more resilient and self-sufficient player in the global high-tech economy. This move would not only insulate India from potential geopolitical pressures but also position it as a reliable alternative supplier and manufacturing hub. However, challenges remain, including the high capital expenditure, environmental concerns associated with mining and processing, and the need for advanced technological know-how. The success of this initiative will depend heavily on the clarity, consistency, and attractiveness of the policies unveiled in Budget 2026 and subsequent government actions, ensuring a conducive ecosystem for long-term private investment and technological development.