India’s Exclusion from US Rare Earths Alliance Makes Little Economic Sense

Any reform or redesign of critical minerals supply chains would require the participation of the Global South.

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Over the last five years, several acronyms have come into parlance in both foreign and trade policy circles. One more gets added to that list with the Minerals Security Partnership (MSP). Earlier in June, the US assembled a coalition of countries to build a robust, critical mineral supply chain to support economic prosperity and climate objectives. The US State Department in its briefing announced that “MSP will help catalyze investment from governments and the private sector for strategic opportunities —across the full value chain —that adhere to the highest environmental, social, and governance standards”.

Akin to the many initiatives the US has come up with in the last five years, this one has a major drawback as well, questioning its ability to make a serious dent in the critical mineral supply chain beyond a few headlines in dailies and publications. While the proposed partnership is primarily viewed as one part of the China+1 strategy and an attempt at reducing dependence on Russia for minerals such as nickel, it falls short of a viable alternative without any emerging markets in it. Moreover, an important partner in any China+1 diversification process, namely India, is missing.

• The partnership is adhering to the catchphrase “follow the money” when it actually needs to follow the demand.

• Any significant reform or redesign of the critical minerals supply chains would require participation by Global South, and without it, it would fall short of being a viable alternative to China or Russia’s dominance in several rare earths.

• Given the trajectory of demand, it will make more economic sense to include India in a China+1 strategy.

• By excluding the developing world, the West is indirectly supporting China and Russia’s efforts to garner support for an alternative bloc to the Western alliance.

The MSP includes the US and ten partners – Australia, Canada, Finland, France, Germany, Japan, South Korea, Sweden, the United Kingdom, and the European Commission. One could summarise this partnership as a mini-Western alliance. Any significant reform or redesign of the critical minerals supply chains would require participation by Global South, and without it, it would fall short of being a viable alternative to China or Russia’s dominance in several rare earths.

Follow the Demand...

The partnership is adhering to the catchphrase “follow the money” when it actually needs to follow the demand. The group of rich nations are not the source of demand for these critical minerals. While the US and Europe present a sizeable market, they appear much smaller in size relative to China or India. The fastest growing markets for critical minerals are in nations that have the fastest adaptation to EVs and renewable energy as a result of the minerals needed to manufacture them. India seeks to transform 80% of the country’s two- and three-wheeler fleet, 40% of buses, and 30% to 70% of cars into electric vehicles by 2030.

Moreover, they are of importance to nations such as China and India (besides the US) since it is their climate targets that will be much harder to achieve than smaller Western nations. Given the trajectory of demand, it will make more economic sense to include India in a China+1 strategy. While India and China are notorious coal guzzlers, they have simultaneously undertaken several measures to wean off coal and increase renewable energy in the power generation mix. Furthermore, in India’s case, government enterprises such as Indian Oil, BPCL and HPCL have been proactive in complementing the private sector’s investments and business decisions. While the big names in the power generation and energy industry, such as Reliance, Adani, Jindal, Tata, and automobile majors such as Mahindra, Tata and TVS, make investments in the renewable energy space and electric vehicle space, respectively, the Indian public sector has supported them with transformational measures in the distribution infrastructure.

For example, BPCL has committed to transforming its petroleum stations to offer electric vehicle charging options across its wide network of 19,000 retail outlets. Private companies such as Bounce have partnered with BPCL to offer battery swapping facilities at retail petroleum stations.

This comes in the backdrop of India’s biggest two-wheeler manufacturers, such as Hero and Bajaj, and four-wheeler manufacturers, such as Mahindra and Tata, expanding their portfolio of electric vehicles. As the number of lithium-ion battery-powered vehicles on the road increases, the demand for minerals along with others such as nickel will increase.

...And Supply

Minerals such as lithium, cobalt and nickel are found in both the developed and developing world. Canada and Australia are two rich nations blessed with critical minerals. In particular, Australia has significant reserves of cobalt and lithium. As a matter of fact, critical minerals featured in the interim Economic Cooperation and Trade Agreement (ECTA) signed between Australia and India earlier this year. However, the world’s largest reserves of nickel are in Indonesia, the largest cobalt reserves are in the Democratic Republic of Congo (DRC) and the largest reserves of lithium are in Chile. Not including these countries in a supply chain initiative focusing on critical minerals may not be a holistic step.

Since China has established partnerships with these nations through its Belt and Road Initiative (BRI), it has a distinct advantage. Not only can China capitalise on the ecosystem and value chains it has created in these countries but it also has a head start through trade agreements such as the Regional Comprehensive Economic Partnership (RCEP). Furthermore, China’s State-Owned Enterprises (SOE) have been slowly developing industrial parks in BRI participant countries such as Indonesia to engage in both upstream and downstream mining of these minerals. Notably, this control of value chains extends to countries in the MSP camp as well. For example, China processes several minerals, while Australia mines them. This is not a phenomenon unique to the mining industry. Over the past 20 years, China has successfully implemented a ‘reverse colonisation’ of the Western world, not necessarily through violence and conflict but by switching positions of power in the hierarchical network of value chains.

The Western world supplies raw materials and China adds value to it. A hundred years ago, the Global South would supply raw materials and factories in Europe would process them.

Currently, the bulk of demand for the minerals comes from China, and understandably, several Australian companies have taken Chinese partners, thereby limiting the scope of diversification away from China. Besides India, no other state has taken a concerted and direct effort to reduce its economic dependence as it has through production-linked incentive schemes (PLI).

West Might Be Alienating Potential Partners

By excluding the developing world, the West is indirectly supporting China and Russia’s efforts to garner support for an alternative bloc to the Western alliance. In the Ukraine conflict, much of the criticism from African and poor Asian countries was toward the West’s unilateral sanctions on Russia and its impact on the prices of oil, grain and other commodities. Last week, the US ambassador to the United Nations, Linda Thomas-Greenfield, warned African nations against buying any Russian goods besides grains and oil. Earlier this year, deputy NSA Daleep Singh warned India of consequences if it continued its purchases of Russian oil. Countries in the Global South have often felt excluded from the decision-making process in world affairs. Initiatives like the MSP coupled with the patronising threats give even more credence to these concerns.

Leaving out India and countries in the developing world when groupings such as BRICS are welcoming nations with open arms and proposing several trade-related initiatives hollows out the promise of a liberal international order offered by the G7 nations.

MSP should include countries from the Global South, in particular, ones that have an existing partnership with China and ones that will significantly alter the course of consumption through their sheer market size. Through B3W and other exclusionary initiatives, the West might be alienating potential partners in the developing world in addressing the two most pressing challenges of our times: climate change and China.

(Akhil Ramesh is a Research Fellow at Pacific Forum. He can be reached at @akhil_oldsoul on Twitter. This is an opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.)