India’s strategic move: Eyes on US pact to break China’s dominance over critical minerals

In a strategic bid to counter China’s dominance over the global supply of critical minerals, India has signed a memorandum of understanding (MoU) with the United States. This pact, announced during a commercial dialogue between Indian Commerce Minister Piyush Goyal and US Secretary of Commerce Gina Raimondo, aims to secure and diversify supply chains for minerals crucial to clean energy technologies and electric vehicles (EVs).

The MoU covers essential minerals like lithium, cobalt, nickel, and rare earth elements, all vital for producing batteries and renewable energy infrastructure. The agreement is a significant step in India’s broader strategy to become a global manufacturing hub and enhance its domestic clean energy capabilities.

Why This Pact Matters: A Move Beyond Chinese Dominance

China currently holds a dominant position in the critical minerals supply chain, giving it leverage over many industries worldwide. By partnering with the United States, India aims to secure an alternative and stable supply chain that can reduce its dependence on China.

India’s involvement in the Minerals Security Partnership (MSP), a coalition that includes countries like the US, the UK, and Japan, underscores its commitment to diversifying its sources. The MSP, which India joined during Prime Minister Narendra Modi’s visit to the US in June 2023, was designed to mitigate China’s monopoly on essential minerals and enhance cooperation among like-minded economies.

Joint Initiatives: Investments and Global Projects

Beyond securing its supply, India is also looking to leverage this partnership for joint projects in third countries. These initiatives are set to attract both public and private investment, further expanding India’s influence in the sector. Goyal emphasized that such collaboration would open doors for greater commercial engagement, fostering significant investments in the EV and renewable energy markets.

Implications for the Clean Energy Market

The critical minerals MoU is expected to boost India’s clean energy transition significantly. With the global push towards EVs and sustainable energy, securing these resources is crucial. The US, under its Inflation Reduction Act, mandates that a percentage of minerals used in EV production must come from allied nations. This deal positions India to benefit from such policies, enhancing its eligibility for US tax credits and other incentives linked to clean energy projects.

The Road Ahead: From MoU to Full-Scale Trade Agreement?

While the MoU marks a critical first step, it is not yet a comprehensive trade agreement. India has expressed its intent to expand this understanding into a full trade pact, similar to the US-Japan agreement that grants Japanese automakers wider access to tax credits for EVs in the United States. A comprehensive agreement could further integrate India’s manufacturing sector into the global clean energy supply chain, presenting opportunities for Indian companies to access the US market with fewer restrictions.

This move reflects India’s proactive strategy to align with global allies and reduce vulnerabilities in critical supply chains. As the global race for clean energy technologies accelerates, securing stable access to these minerals will be vital for India’s ambitions as a clean energy leader.

Expert Insights: Navigating Strategic Alliances

Industry analysts suggest that this partnership is crucial for India’s ambitions in the EV sector. By diversifying its supply chains, India could enhance its role in the global market for batteries and green technologies. Experts highlight that India’s decision to join the MSP is a calculated move to build resilience against China’s dominance, strengthening its geopolitical and economic ties with major powers like the US.

However, transforming the MoU into a binding agreement remains critical. Achieving this would not only grant India access to the US tax credits but also solidify its position in the international clean energy landscape, analysts added.