Whalesbook
### Strategic Pivot in Critical Minerals
India's Union Budget for 2026-27 signals a decisive shift in its approach to critical minerals, prioritizing domestic processing and exploration. This policy push comes against a backdrop of significant global geopolitical and supply chain risks, particularly concerning China's dominant position in the sector. For years, India has faced a critical vulnerability due to its heavy dependence on imports for refined minerals and components. This reliance extends to a 100% import dependency for key minerals such as cobalt, lithium, nickel, rare earth elements (REEs), and silicon, all crucial for India's ambitious clean energy and advanced manufacturing agendas [12, 14]. China currently controls approximately 90% of global critical mineral processing, a concentration that poses strategic risks amid fluctuating international trade relations.
### Catalyzing Domestic Processing Capacity
The centerpiece of the budget's strategy is the proposed exemption of basic customs duty on capital goods required for the processing of critical minerals. This fiscal measure is designed to enhance the economic viability of domestic processing projects, thereby encouraging investment and reducing the nation's dependence on foreign refined supplies. Rajib Maitra, Partner at Deloitte India, noted that such exemptions provide crucial fiscal incentives and regulatory clarity, supporting the growth of emerging sectors like electric mobility, renewable energy, and advanced manufacturing. Furthermore, the budget proposes the establishment of dedicated Rare Earth Corridors in mineral-rich states, including Odisha, Kerala, Andhra Pradesh, and Tamil Nadu, aimed at promoting integrated mining, processing, research, and manufacturing activities. The customs duty on Monazite, a primary ore for rare-earth elements, has also been reduced to zero from the previous 2.5%.
### Fueling Future Demand
The demand for critical minerals in India is projected to surge. India's commitment to expanding renewable energy capacity and accelerating electric vehicle (EV) adoption directly fuels this demand. Minerals like lithium, cobalt, and nickel are indispensable for batteries, while silicon is vital for semiconductors and solar panels. The push for Net Zero by 2070 further underscores the need for a secure and robust supply chain of these essential materials. This burgeoning demand, coupled with global supply chain vulnerabilities, necessitates a concerted effort to build indigenous capabilities.
### Incentives for Exploration and Value Chain Development
Beyond processing, the budget also prioritizes the upstream segment of the value chain by incentivizing the prospecting and exploration of critical minerals. Certain critical minerals will now be eligible for tax deductions on expenditures incurred during exploration, alleviating the financial burden on mining companies during the high-risk discovery phase. This initiative aligns with the broader National Critical Mineral Mission (NCMM), launched in January 2025. The NCMM, with an envisaged outlay of approximately ₹34,300 crore over seven years, aims to secure the entire critical minerals supply chain, from domestic exploration and mining to processing, recycling, and overseas acquisition. Central public sector undertakings are expected to contribute an additional ₹18,000 crore under this mission. This comprehensive approach seeks to build a resilient domestic ecosystem for these strategically vital resources.