Chips need minerals, too

India has taken significant strides in becoming a global semiconductor power house, with the recent announcement of four major semiconductor manufacturing units in the states of Andhra Pradesh, Odisha and Punjab, bringing in an investment of Rs 4,600 crores. With these additions, the total number of manufacturing facilities established under India’s Semiconductor Mission has reached 10, with a cumulative investment of a staggering Rs 1.6 lakh crores.

The growth numbers in India’s semiconductor landscape tell an inspiring story. From Micron’s Rs. 22,516 crore facility in Gujarat to Tata Electronics’ massive Rs. 91,000 crore partnership with Taiwan’s PSMC, India’s semiconductor ecosystem is rapidly taking shape. The latest addition, HCL-Foxconn’s Rs. 3,700 crore joint venture in Uttar Pradesh’s Jewar, promises to produce 20,000 wafers monthly. These achievements are highly impressive, given India’s ambition to capture a market of $110 billion by 2030, approximately 10 per cent of the global market. While we celebrate these manufacturing milestones, a critical vulnerability remains overlooked: the supply of Rare Earth Elements (REE). Without securing a sustained supply of REE, India’s impressive growth in the global chip manufacturing industry could significantly derail.

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Rare Earth Elements, found in the earth’s crust, are incredibly essential to produce semiconductors. Most significant of them all is silicon, with China controlling 80 per cent of the raw silicon production in the world. In addition to silicon, other elements such as gallium, germanium, dysprosium and terbium are highly essential to produce semiconductors. China controls over 70 per cent of the total rare earth elements combined, making it a near monopoly in the sector. Therefore, India relies heavily on China for the import of Rare Earth Elements to be utilised by the semiconductor industry.

Out of the 2,270 tonnes of rare earth elements imported by the country in 2023-24, 65 per cent was imported from China. Heavy reliance on imports, particularly from a single country, makes a country’s supply chain fragile. This dependency leaves the supply chain vulnerable to changes in tariffs, global export conditions, and geopolitical shifts. In today’s volatile global landscape, these factors can vary quickly and have a significant impact on the industry. Under this light, an alternative for India is domestic extraction of Rare Earth Elements. However, rare earth mining is very harmful to the environment. There are two primary extraction methods for rare earth elements, both of which release toxic chemicals into the environment with devastating consequences.

The first method involves stripping the topsoil of the land and creating leaching ponds where harsh chemicals separate the valuable metals from the earth. The second method uses PVC pipes and hoses to pump chemicals directly into the ground, creating similar contamination issues and making the environmental cost of REE extraction very significant. According to Harvard International Review, for every ton of rare earth elements produced, mining operations generate 13 kilograms of dust, up to 12,000 cubic meters of toxic gases, 75 cubic meters of contaminated wastewater, and one ton of radioactive waste. Most alarming is the presence of thorium and uranium in REE ores, which adds a radioactive dimension to the contamination.

In total, producing one ton of rare earths creates 2,000 tons of toxic waste. Hence, China’s dominance in this sector stemmed mainly from its willingness to bear these environmental costs for mineral production. Non-strict environmental regulations and a tolerance for high-pollution extraction methods allowed Chinese companies to undercut competitors and establish market control. The most infamous example is the Bayan-Obo mine, the world’s largest REE extraction site, which has created a tailing pond containing over 70,000 tons of radioactive thorium. Without proper lining, this toxic sludge is seeping into groundwater at an alarming rate of 20-30 meters per year, threatening the Yellow River.

Given this information, even though India has identified regional deposits of REE pending extraction, over-reliance on extraction can be dangerous for the environmental resources in the country. To safeguard its semiconductor ambitions, India must adopt a three-pronged strategy. First, diversify sources of Rare Earth Elements by forging strategic, long-term supply agreements with other countries supplying the elements, such as Australia, with a share of around 4 per cent in global rare earth production. Additionally, procurement must be scaled up with countries such as the United States, Vietnam, and select African countries that possess significant REE reserves and are actively looking to counterbalance China’s dominance in the market.

Second, is to invest in responsible domestic extraction. India has identified REE deposits in Andhra Pradesh, Kerala, and Tamil Nadu, yet extraction remains minimal due to technical, environmental, and infrastructural challenges. It is essential to establish advanced processing facilities, keeping in mind global best practices for environmental safeguards, and using domestic extraction mainly as a strategic buffer during global supply disruptions, given its adverse environmental impacts.

Third, and perhaps most critically, India must make large-scale REE recycling a national priority. India generates vast amounts of electronic waste annually, much of which contains recoverable quantities of Rare Earths. By establishing an integrated e-waste collection and processing ecosystem, India can reclaim valuable materials while reducing the environmental footprint of mining. Technologies for REE recovery from discarded electronics already exist globally, and with targeted investment, India can adapt and scale them domestically.

Recycling offers a circular, sustainable, and geopolitically secure supply, making it a crucial pillar of resilience for building India’s semiconductor industry. By blending global sourcing diversification, environmentally sound domestic mining, and robust recycling, India can reduce its overreliance on a single supplier and strengthen its position in the worldwide semiconductor race. In the high-stakes world of advanced technology, securing critical minerals is not merely an economic goal but will also ensure long-term technological sovereignty and India emerging as a leader in the semiconductor industry.

(The writers are, respectively, Chair and Researcher at the Institute for Competitiveness.)