Context

• Rare earth elements (REEs) are central to the new post-pandemic economic landscape: they underpin everything from advanced ballistics systems to industrial machinery and TV screens, contributing a total value of nearly $200 billion to the Indian economy. 
• They are also crucial to emerging technologies such as renewable energy and electric vehicles.

What are rare earth elements?

• The rare earth elements are a set of seventeen metallic elements. They are called ‘rare earth’ because earlier it was difficult to extract them from their oxides forms technologically.
• They are an essential part of many high-tech devices. The 17 Rare Earths are cerium (Ce), dysprosium (Dy), erbium (Er), europium (Eu), gadolinium (Gd), holmium (Ho), lanthanum (La), lutetium (Lu), neodymium (Nd), praseodymium (Pr), promethium (Pm), samarium (Sm), scandium (Sc), terbium (Tb), thulium (Tm), ytterbium (Yb), and yttrium (Y).

Why are they important?

• Rare earths are a class of metals. Their oxides need to be used in small but significant quantities to make electric vehicles, mobile phones and sundry other consumer electronics, besides wind turbines and solar energy units. 
• Renewable energy, therefore, depends on these metals. 
• Their demand is expected to soar, as the global energy mix shifts away from fossil fuels.

Who are the top producers?

• China has over time acquired global domination of rare earths. 
• It has 44 million tonnes of proven reserves (2021), estimated at one-third of known global reserves. 
• China annually produces 168,000 tonnes of rare earth oxides, which is 60 percent of the world’s market share. 
• The US has a 15-16 per cent market share and Myanmar (with the help of China) holds around 9.5 per cent. 

Need for diversification

• India has the world’s fifth-largest reserves of rare earth elements, but it imports most of its rare earth needs in finished form from China.

• Rare earths have a single-supplier, and China will remain the go-to supplier for the foreseeable future. 
  • China along with Myanmar controls nearly 70 percent of the market. 
• If China is hit by another pandemic, or there’s a civil war, or a tsunami affecting Chinese coasts, or it has a toxic relationship with some nation, rare earth supplies could be cut off.

Existing Bottlenecks

• Merely having deposits of rare earths is no guarantee of being able to exploit them. Processed minerals usually take the form of a rare earth oxide (REO), which then needs to be converted into a pure metal before it can be used to manufacture anything.
• India has granted government corporations such as Indian Rare Earths Limited (IREL) a monopoly over the primary mineral that contains REEs: monazite beach sand, found in many coastal states. 
• IREL produces rare earth oxides (low-cost, low-reward “upstream processes”), selling these to foreign firms that extract the metals and manufacture end products (high-cost, high-reward “downstream processes”) elsewhere. 
• With little incentive to provide to global markets, IREL accounts for only a minuscule fraction of the world’s production: only 2265 tonnes of REOs in 2016-17, providing almost no value to domestic manufacturers and consumers, who continued to import finished REE derivatives from China.

Reforms and Solutions

• The key challenge for India today is to scale up upstream and downstream processes in the rare earths value chain. India must open its rare earth sector up to competition and innovation, and attract the large amounts of capital needed to set up facilities to compete with, and supply to, the world.
• The best move forward might be to create a new Department for Rare Earths (DRE) under the Ministry of Petroleum & Natural Gas. This DRE should oversee policy formulation and focus on attracting investment and promoting R&D.
• It should also create an autonomous regulator, the Rare Earths Regulatory Authority of India (RRAI), to resolve disputes between companies in this space and check compliance.
• There are three possible approaches to maximising India’s rare earth potential. First, the DRE could secure access to REEs of strategic importance by offering viability gap funding to companies to set up facilities in the upstream sector. 
• Alternatively, it could focus on downstream processes and applications, such as manufacturing magnets and batteries; this would require a focus on port infrastructure and ease of doing business measures to allow Indian manufacturers to import REOs from whitelisted producers cheaply. 
• Finally, it could coordinate with other agencies to partner directly with groupings such as the Quad, building up a strategic reserve as a buffer against global supply crises.

Way Forward

• According to a 2016 estimate, the Indian REE industry could potentially net a capital employment of about Rs 121,000 crore, including Rs 50,000 crore worth of foreign exchange. 
• India has already missed one global wave of industrial manufacturing. Its rare earth reserves and the post-pandemic economic situation offer it an opportunity to ride the next wave towards high-tech manufacturing. It must be sure not to miss this chance.