Union Budget 2026-27 Unveils Strategic Push for Critical Minerals to Counter China Dominance
In a significant move aimed at reducing India's reliance on China, the Union Budget for the fiscal year 2026-27 has announced comprehensive measures to bolster the country's critical minerals and rare earths ecosystem. The announcements, presented by Finance Minister Nirmala Sitharaman in Parliament, form part of the government's broader strategy to secure the entire supply chain—from domestic exploration and mining to processing, recycling, and overseas acquisition.
Dedicated Rare Earth Corridors in Coastal States
The Budget proposes the establishment of dedicated rare earth corridors in India's coastal states, specifically Odisha, Kerala, Andhra Pradesh, and Tamil Nadu. These corridors are designed to promote integrated activities including mining, processing, research, and manufacturing. This initiative aligns with the recently announced scheme to boost the manufacturing of Sintered Rare Earth Permanent Magnets (REPMs), which are essential for advanced technologies.
With a financial outlay of Rs. 7,280 crore, the scheme aims to support an integrated REPM manufacturing capacity of 6,000 metric tonnes per annum (mtpa). This capacity will be allocated among five beneficiaries selected through competitive bidding, with each eligible for up to 1,200 mtpa. Additionally, the scheme includes sales-linked incentives worth Rs. 6,450 crore over five years and a capital subsidy of Rs. 750 crore to set up integrated REPM units.
These high-strength REPMs are crucial for a wide range of applications, including:
- Electric vehicles
- Renewable energy systems
- Electronics
- Aerospace
- Defence technologies
Rajib Maitra, Partner at Deloitte India, highlighted the strategic importance of these coastal states, noting that they possess beach sand deposits rich in monazite reserves, which can produce essential rare earth elements like neodymium and praseodymium.
Customs Duty Exemptions to Boost Processing Capacity
To enhance India's nascent critical mineral processing capabilities, the Budget has announced an exemption of basic customs duty on the import of capital goods required for processing critical minerals. This measure is expected to reduce project costs and improve competitiveness, addressing one of the key bottlenecks in India's critical minerals ecosystem.
Rishabh Jain, Fellow at the Council on Energy, Environment and Water, emphasized that minerals processing is highly capital-intensive, and equipment is often imported. The duty reduction will lower overall project costs, making investments more viable.
Incentives for Exploration and Broader Supply Chain Security
The Budget also emphasizes incentivizing the prospecting and exploration of critical minerals, with India targeting 1,200 critical mineral exploration projects by FY31. This push comes against the backdrop of China's overwhelming dominance in the global critical minerals and rare earth value chain.
Over the past year, Beijing has imposed curbs on several critical and heavy rare earth minerals amid escalating trade tensions with the US. Although some restrictions were eased following talks between US President Donald Trump and Chinese President Xi Jinping, prolonged controls have forced countries, including India, to diversify their supply chains and reduce dependence.
India imported over 53,000 metric tonnes of rare earth magnets during FY25, and domestic consumption is expected to double by 2030. Currently, India meets its demand primarily through imports, underscoring the urgency of building a resilient and globally competitive critical minerals ecosystem.
The measures announced in the Budget are seen as a critical step toward achieving this goal, fostering domestic capabilities, and ensuring long-term supply chain security in the face of global uncertainties.
