India’s Rare Earth Dilemma with China: An Overview of Strategic Dependency

By Swati Kanwar*

Published on 15th July 2025

During the recent visit by Chinese Vice Foreign Minister Sun Weidong to India in mid-June, the discussions prominently featured rare earth minerals and their supply chains. Indian counterparts emphasised the urgent need for predictability in the supply chains of these minerals. Due to China’s restrictions on the export of the rare earth magnets on 4^th April, Indian automobile and clean energy sectors are apprehensive of possible shortage in the supply of rare earths, an element which is a crucial component in the manufacturing of industrial technologies. This diplomatic channel between India and China thus opened up a space to hold “functional dialogue” on the criticality of the issue. Although this development portends a silver lining in the dark clouds, the problem needs deep structural solutions on India’s part to ensure diversification of its critical mineral supply chain. 

The Structural Imbalance in the Rare Earth Trade and India’s Vulnerability

While highlighting the over-dependence on China for these minerals, Union Commerce Minister Piyush Goyal termed these unilateral export curbs by China as a global “wake up call”. His remarks illustrate the structural imbalance existing in the global trade of the rare earth minerals. China processes close to around 90 percent of the global rare-earths and is home to over 90 percent of the permanent magnet production, thereby establishing a “near-monopoly”. It has been argued that at times China has used other countries’ dependence on itself as a strategic leverage, the oft-quoted instance being that of Japan in 2010, whereby the former placed rare earth embargoes on the latter over a fishing dispute. Although there have been refutations of this and similar episodes based on empirical study carried out comparing the slump in exports of the rare earths from China post browbeat. Be that as it may, the prospect of strategically leveraging the economic dependence remains, as long as there is trade among nations. The emergent discourse should be how to shield and diversify the supply chain to decrease the likelihood of any such event happening which would have a crippling effect on a country’s economy. In this regard, India needs to fix its economic and structural dependency on China, particularly in the rare earth elements.  

India, although richly endowed with 6.9 million tonnes of rare earth reserves, making it the fifth-largest reserves globally, is processing less than 1 percent of it. It is heavily reliant on China for the import of rare earth elements (REE). The import consumption of permanent magnets from China, for instance, significantly increased by 95 percent year-on-year in FY25. These magnets are an essential value-added material for motors, effectively improving the efficiency of electric vehicles. Apart from EVs, they are used for a range of high-tech applications, ranging from everyday IoT devices to health, defence, and clean energy technologies. At the present state of development, the 4^th April export curb will affect the Indian automobile sector, owing to its stake as the fourth largest automobile producer globally and has a significant share in India’s GDP growth rate. The safe supply of the essential raw materials for the automobile sector is pivotal as India embarks on a journey of transformative shift towards sustainable development, with increasing demand for EVs and advancements in battery technology.

The economic relations between India and China have a strong imprint of the border standoffs, adding a layer to the already complex relationship. The spectre of the unresolved borders still looms large at the diplomatic table, translating over to other dimensions due to lack of trust in each other’s motivations. In terms of trade with China in REE, India finds itself in a dilemma as to how to decouple strategically from China while diversifying its mineral supply chain and meet the trade-off for the cost involved in mining and processing its domestic reserves. This asymmetric dependency on China transcends any economic logic for India to continue with business as usual on account of past trends and behaviour by the former in leveraging REE as a strategic tool. India must confront this challenge to achieve self-reliance and strategic autonomy in the true sense.

Strategic Challenges

While other countries are moving swiftly towards “decoupling”, “de-risking” and “China+1” strategy to actively reconfigure the rare earth supply chain, India’s response is rather sluggish and fragmented. There is a policy lag amid global realignment, for instance, although India joined the Minerals Security Partnership in 2023, its effective implementation followed only after it got inducted into the Minerals Security Finance Network (MSFN) a year later. Similarly, the National Critical Mineral Mission (NCMM) was launched in 2025. Delays on the policy front cost the benefits associated with the first-mover advantage and evolving trade policies globally.

On the domestic front, India needs an urgent relook at its legacy regulations to facilitate optimum usage of the country’s reserves, which more often than not come under litigation due to complex definitions and labelling. The current laws and regulations guiding the mineral sector were passed post-independence, which were in turn directed by the need of those years. However, fast forward to the 21^st century, India’s economic structure has undergone a massive shift. The archaic laws fail to reflect this reality. For instance, The Atomic Energy Act of 1962 categorises monazite-bearing sands as a “prescribed substance”, this limits the private sector participation and international collaboration in the field. China, on the other hand, has undergone stages of policy evolution with respect to the rare earth governance. These have been affected by the market players, the development of the mineral industry, and the state of the Chinese economy in a unique interplay of these forces to develop not only the upstream but also midstream and downstream processing capacities. This integrated and evolutionary approach has made China into a rare earth giant it is today, commanding global supply chains and innovating key chokepoints to strengthen its bargaining power.

For India to become self-reliant in technologies using rare earths as a raw material, it needs a constant flow of finances and the technological know-how. To circumvent the dilemma of gaining strategic sovereignty through economic decoupling is easier said than done. China developed its rare earth strategy way back in 1980s, when the international environmental governance architecture was still in a nascent phase. China had the structural advantage of “low environmental standards” helping it to “become the world’s low-cost producer of rare earths”, the luxury of which India does not have. To develop the downstream processing of rare earths now, would imply added cost of environmental damage, which if India were to take will run contrary to its goal of providing climate leadership on world’s stage. India thus finds itself in a Hamletian dilemma, caught in a “to be or not to be” moment. How it weighs the cost of systemic dependence on China against the necessity of strategic autonomy in rare earths, will have a bearing on both the industrial ecosystem of India as well as the bilateral relations between the two countries. 

The export curbs by China on April 4^th made it amply clear that India cannot risk its supply chain at the behest of global power dynamic at play. As the race for critical minerals intensifies, India must upgrade its strategy to not only protect the economic growth but also be able to assert its strategic autonomy. All this will be possible if India orchestrates a long-term investment plan of tapping its own domestic reserves in a sustainable manner and build on its good relations with other countries in order to diversify its global supply chain. One missed opportunity must not paralyse the promise ahead. 

*Swati Kanwar is a PhD candidate at the Centre for East Asian Studies, School of International Studies, Jawaharlal Nehru University and intern for KIIPS. Her PhD research focus: China’s Critical Mineral Strategy and its Impact on Energy Transition and Global Supply Chain.