The Hindu Editorial Analysis- 27th December 2024 | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Tapping into Kazakhstan’s rare Earths Potential

Why in News?

The global shift towards renewable energy has led to a surge in demand for rare earth elements (REEs), which are crucial for clean energy technologies and advanced applications. 

• Despite having substantial reserves of these minerals, India heavily depends on imports, primarily from China. This reliance poses significant risks to supply chains and national security. 
• To mitigate these risks, India is exploring alternative sources for rare earths, with Kazakhstan emerging as a strategic partner to diversify its supply. 

Global Demand for Rare Earths and India’s Energy Transition

• The transition to cleaner energy has significantly increased the global demand for rare earths.
• India, the third-largest carbon emitter, is pivoting to renewable energy and faces a rising need for rare earth elements.
• Despite being the fifth-largest holder of rare earth reserves, India heavily relies on imports, primarily from China, due to a lack of advanced extraction technologies.
• Supply chain disruptions and security concerns linked to China’s dominance are prompting India to diversify sources through partnerships with the U.S., Latin America, and Africa.
• Kazakhstan emerges as a promising alternative to reduce dependence on China.

China’s Dominance in the Rare Earth Sector

• China holds over one-third of the world's rare earth reserves and is responsible for about 70% of global production.
• India relies on China for around 60% of its rare earth imports due to limited domestic production capabilities.
• China's control over critical minerals has led to supply disruptions, including halting antimony supplies and restricting key extraction technologies in December 2023.
• The geopolitical tensions following the invasion of Ukraine have further underscored the vulnerabilities of concentrated supply chains, with reduced ore supplies from Russia exacerbating these risks.

Kazakhstan as a Strategic Partner for Rare Earths

• Kazakhstan is rich in rare earth elements, possessing 15 of the 17 known rare earths. This positions the country as a potential key supplier for India.
• India’s ‘Connect Central Asia’ policy and the International North-South Transport Corridor facilitate closer collaboration with Kazakhstan.
• Kazakhstan has developed advanced extraction technologies and has established partnerships with countries like Japan, Germany, and the EU, enhancing its capacity for rare earth production.
• The production of critical rare earths, such as dysprosium, in Kazakhstan is expected to increase significantly between 2024 and 2029.
• The President of Kazakhstan has highlighted the economic importance of rare earths, likening them to the “new oil.”
• In addition to rare earths, Kazakhstan produces other critical materials like beryllium, scandium, tantalum, and niobium, which are essential for clean energy technologies and telecommunications.

Path to Collaboration and Resource Security

• India aims to achieve 500 GW of renewable energy capacity by 2030, highlighting the crucial role of rare earth elements in this transition.
• There are plans to increase mining output of rare earths by 400%, demonstrating India’s commitment to building capacity across the entire supply chain.
• The proposed ‘India-Central Asia Rare Earths Forum’ seeks to promote bilateral training, joint mining ventures, and sustainable extraction practices.
• Collaborating with Kazakhstan can enhance India’s resource security, reduce reliance on China, and promote sustainability through regional partnerships.

Importance of Rare Earth Minerals for India’s Evolving Economy

• Strategic Resource for Technology: Rare earth minerals are critical for manufacturing electronics, renewable energy technologies, and advanced defense systems, essential for India’s technological aspirations.
• Renewable Energy Transition: Key components like neodymium and dysprosium are used in wind turbines and electric vehicle motors, supporting India’s shift to clean energy.
• Telecommunication Infrastructure: Rare earth elements are vital for producing optical fibers and semiconductors, pivotal for expanding India’s digital economy.
• Defense and Space Industry: Minerals like yttrium and gadolinium are used in missile guidance systems and satellite communication, strengthening India’s strategic capabilities.
• Boost to Manufacturing Sector: Availability of rare earths can reduce import dependence and support initiatives like ‘Make in India.’
• Economic Diversification: Leveraging domestic resources can attract investments in mining and processing, creating jobs and boosting economic growth.
• Global Geopolitical Leverage: Strengthening rare earth production enhances India’s role in global supply chains, reducing dependence on dominant players like China.

Should the Wealth Tax be Reinstated in India?

Why in News?

Wealth tax is being considered as a way to tackle inequality and raise funds for essential sectors like health and education. 

• Critics of wealth tax point out the difficulties in measuring wealth and the risk of capital flight, questioning its effectiveness. 

Challenges in Implementing Wealth Tax

• Wealth Measurement Issues: Valuing assets, particularly non-liquid ones such as real estate and gold, poses significant challenges. 
• Behavioral Impacts: Imposing high taxes on liquid assets might encourage the wealthy to shift their investments to less productive assets. 
• Capital Flight: Elevated tax rates on the affluent could trigger an outflow of capital and skilled individuals, potentially harming the economy. 

Historical Experience with Wealth Tax in India

• Wealth tax was abolished in India in 2016-17 due to low revenue generation, which constituted less than 1% of gross tax revenues. 
• The administrative costs and challenges of collecting wealth tax, coupled with widespread tax evasion, made it impractical. 

Arguments in Favor of Reintroducing Wealth Tax

• Inequality Reduction:. high concentration of wealth restricts opportunities for a large segment of the population, hindering overall development. 
• Improved Tracking Systems: Enhanced tools and frameworks could rectify past inefficiencies and improve wealth data capture. 
• Global Practices: Countries like Norway have successfully implemented wealth taxes with minimal capital flight, owing to robust public infrastructure and services. 

Opposition to Wealth Tax

• Focus on Growth: Critics contend that economic growth, rather than redistribution, is essential for improving social indicators such as health and education. 
• Public Finance Concerns: Advocates for efficient taxation suggest concentrating on fewer, broad-based taxes like personal income tax, GST, and property tax. 
• Expenditure Effectiveness: Merely directing wealth tax revenues to sectors like education may not yield significant improvements due to systemic inefficiencies. 

Alternative Approaches to Address Inequality

• Comprehensive Tax Systems: Integrating taxes on labor, capital, and real estate at fair rates could reduce loopholes. 
• International Collaboration: Agreements with other nations can enhance wealth transparency and mitigate evasion. 
• Targeted Development Spending: Effectively utilizing tax revenues for public goods and infrastructure could strike a balance between growth and redistribution. 

Conclusion

• While wealth tax has the potential to support development objectives, concerns regarding its implementation, economic repercussions, and expenditure efficacy need to be carefully considered. 
• The ongoing debate highlights the necessity for a balanced approach that fosters both economic growth and equitable opportunities.