Catalysing public capital for India’s critical minerals sector

As India transitions towards net-zero, securing critical minerals will be critical to meeting its target. The Indian government’s approval for the National Critical Mineral Mission earlier this year, entailing roughly Rs16,300 crore (US$1.9 billion) in direct public spending and an additional Rs18,000 crore (US$2.1 billion) via public-sector undertakings (PSUs), represents a bold commitment to securing critical materials essential for the clean energy and high-tech industries. Compared to the multi-trillion-dollar global investment needs identified by Bloomberg NEF (over US$2 trillion for mining through 2050) and the extensive critical minerals programmes in Australia and the US, India’s capital outlay is modest. Each rupee must be deployed with precision to overcome a highly risky and capital‐intensive environment, where industry players face regulation uncertainties, price volatility and protracted project timelines.

Overcoming these obstacles – particularly in exploration, midstream processing and recycling – will require thoughtful financing designs that integrate direct government-backed loans, guarantees, concessions, customised insurance and strategic participation by specialised agencies, including the Export-Import Bank of India (EXIM Bank). 

Understanding the mining funding challenge

Investing in critical minerals mining is capital-intensive, and it could take years for revenue to start tricking in. Volatile metal prices, and lengthy exploration processes like drilling, sampling and geophysical mapping can deter private investors. Regulatory uncertainties further compound these risks, making it important to come up with innovative financing approaches. 

Typically, mining for critical minerals requires capital investments spanning 10-20 years. Metal price volatility further filters out many institutional investors. Moreover, monthly overheads (salaries, energy costs, supplies) must be covered early, well before stable offtake agreements. If critical-mineral prices dip below breakeven, margins dissolve, leading to capital losses. The risk-return imbalance partly explains why advanced exploration and greenfield mining often flounder without state support, especially in new exploration areas.

As a recent report points out, India has tapped less than 10% of its Obvious Geological Potential for minerals, underscoring the vast scope of upstream exploration and the associated heightened risk in this early stage.

Financing strategies 

Large non-financial corporations with robust balance sheets and strong cash flows are prime candidates for upstream investment. Loans and grants offered by the government on specific terms can also help de-risk the sector. Similarly, EXIM Bank could offer specialised lines of credit and collaborate with foreign governments to anchor investments for securing critical mineral assets abroad. India could also create an insurance pool for critical mineral ventures by collaborating with global reinsurers or Multilateral Development Banks (MDBs). This pool might cover political/regulatory force majeure, abrupt policy changes or commodity shortfalls. Together, these tools can bridge the risk-reward gap, ensuring public capital catalyses private investment in high-stakes phases of the value chain.

Because the mining sector requires long-term strategic investments and is prone to cyclical economic downturns, public-sector undertakings (PSUs) – which act as judicious investors – can seize opportunities in strategic minerals, given their ability to navigate policy/regulatory risks more effectively than smaller private players. The newly allocated capital from the government can be channelled towards PSUs for joint ventures, facilitating expansions in nickel or lithium refining, or stepping in where private investors find the rollout too slow.

The government can offer grants tied to performance milestones, such as drilling results or feasibility studies. Concessional loans at sub-market rates can unlock mine development once viable deposits are identified. These loans and grants can be made recoverable through royalty-based financing. The government provides upfront grants or loans for exploration, recoverable only if the mine becomes operational, via a percentage of future royalties. This aligns public capital with project success, ensuring repayment hinges on commercial viability. By absorbing early-stage risks, this model can incentivise private firms to invest in high-risk exploration. Pairing these with partial credit guarantees would reassure lenders, lowering borrowing costs for midstream expansions like lithium hydroxide refineries. A portfolio approach – spreading guarantees across projects – would mitigate the concerns of default risks for the lenders. 

The government (or state-backed entities) could also provide guarantees to purchase a portion of a project’s output at a pre-agreed floor price, insulating developers from market volatility. These guarantees would act as demand anchors, making projects less risky for private investors. Such agreements can be used by state-owned entities or government agencies to secure critical raw materials, providing miners with relatively stable cash flows and greater access to project financing.

Finally, EXIM Bank can offer credit for purchasing domestic mining‐equipment, or structured trade finance tied to offtake agreements with automakers or battery manufacturers. It can work with foreign governments and local corporations to secure overseas mineral assets. Through its timely intervention, the bank can catalyse the formation of local refining hubs that small miners can utilise.

Multiplier effects of government capital

Targeted government capital spending can trigger multiplier effects. Take, for example, the possibility of a multiuser refining cluster in Jharkhand or a similar state with high mineral potential. The state government might invest in the associated infrastructure, such as roads and stable power generation where needed, while central authorities can solicit partial capital from MDBs or climate finance funds. Grants/concessional capital from these institutions, earmarked for “green infrastructure”, could reduce the load on both, the state and potential private investors.

Development banks or climate funds could also sponsor some sort of viability gap funding for initial infrastructure. By blending domestic government outlays, India can ensure these resources directly lower the cost of capital for risky but necessary midstream construction (e.g., refineries, specialised smelters).

Conclusion

A bold, resourceful and coordinated financial strategy is essential to secure critical minerals.  India must act nimbly to catalyse private capital, ensuring both the near‐term development of the domestic supply chain and long‐term sustainability. If approached with the right blend of public capital and risk‐sharing instruments, India can secure vital raw materials, support economic growth, and advance its vision of self‐reliant manufacturing and net‐zero emissions.

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