The FDI angle:
- India’s discovered what could be one of the world’s largest reserves of lithium in Kashmir.
- The find may well become a magnet for investment and FDI, but also risks fuelling further political and social upheaval.
- Sami Hamdi, managing director of political risk research firm The International Interest, wonders: 'Is prime minister Modi inclined to impose an environment where Kashmiris will benefit from these resources?'
At a time when consumers across the globe find themselves switching from petrol to electric cars, India’s discovery of what could be one of the world’s largest reserves of lithium in Kashmir comes as an auspicious surprise. However, territorial disputes — the find is in India-administered Jammu and Kashmir (J&K) — along with domestic concerns and the difficulty of mining and processing the raw reserves, leave questions around what will happen to the discovery and who benefits from it.
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Lithium reserves in the area were first detected in J&K’s Reasi district by the Geological Survey of India (GSI) in 1999, although their extent was not known. In February this year, the GSI estimated that the district holds “5.9 million tonnes inferred resources of lithium”. Its 2023 survey upgraded the site from the reconnaissance stage to the prospecting stage.
The next two stages involve further exploration before a feasibility study can be conducted. If these reserves can be accessed, it would place India as the fifth-largest lithium reserve in the world, according to an article published by Mining Technology.
In a market where the offer of lithium is struggling to keep up with the fast-growing demand originating from the switch to electric mobility, India’s lithium “would be a shot in the arm for both India and the world’s transition to clean tech”, says Nirgunan Tiruchelvam, head of consumer and internet at investment advisory firm Aletheia Capital.
India’s lithium “would be a shot in the arm for both India and the world’s transition to clean tech.
But the political and geographical challenges must be addressed if this is to happen.
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Understanding Kashmir
Kashmir, located at the northernmost tip of the Indian subcontinent, is subject to a territorial dispute with India, China and Pakistan all claiming various parts of the region. Currently, India controls the central and southern portion, Pakistan the northwestern portion, while China controls the northeast. The India–Pakistan border in particular is heavily militarised.
India’s lithium find is located less than 40 miles from the Pakistani border. Although Islamabad has not officially responded to the discovery, the value of the reserves may exacerbate an already tense border dispute.
“Lithium has been there and everyone knows it,” says Sami Hamdi, managing director of political risk research firm The International Interest. “The difference now is that India feels brave enough to begin extracting it [because it believes] that the [international] consequences will be limited.”
In addition to border disputes, the domestic situation in J&K has been tense for more than two decades, with frequent stand-offs between the government and the local population. Tensions have escalated since the election of Narendra Modi’s Hindu nationalist Bharatiya Janata Party (BJP) in 2014, particularly after recent changes to J&K’s special status.
In 2019, Mr Modi’s government revoked J&K’s constitutionally guaranteed special status and autonomy, which it had enjoyed since 1954 under Article 370, as India’s only region with a Muslim-majority population. This sparked geopolitical tensions, with Pakistan’s then prime minister Imran Khan calling on the international community to intervene.
Scrapping Article 370 also gave the Indian government greater control over J&K’s investment policy, which included providing incentives for investors such as tax breaks and infrastructure insurance, in a bid to attract foreign direct investment.
Further reading on South Asia:
Domestic challenges and extraction problems
Another major problem is the location of J&K’s lithium reserves. Since they are largely found in inhabited areas, such as the village of Salal, their extraction will require the relocation of thousands of people. But the existing tensions between the government and local populations suggest challenges ahead with compliance.
One solution to the relocation problem was suggested by Salal village head Pritam Singh in an interview with media outlet Euronews: “The government should relocate all the villagers to a safer place and provide them [with] compensation five times more than the actual cost of the land,” he said, adding that the locals should also be first to benefit from the lithium mined.
Furthermore, processing the lithium would not be straightforward. The reserves found in Kashmir are of lithium ore, which must first be converted into lithium hydroxide. Several processing stages later, it becomes lithium iron phosphate — the component used in most electric batteries.
“Once you have lithium hydroxide from the mines of Kashmir, you then need a chemical precursor from the market [to process it]. The [person providing] the precursor needs to procure cobalt sulphate, nickel sulphate and manganese sulphate from three different parties,” says Rahul Bollini, founder of India-based lithium-ion services company, Bollini Energy.
“The whole process needs a lot of different types of companies that are specialised to be battery grade. In India, not many companies are able to do this. You would need big tie-ups with international companies for this to take off,” he adds.
The role of the private sector
Speaking in India’s parliament in March, mines minister Pralhad Joshi announced plans to auction the lithium reserves to private bidders. “The exploitation of lithium will depend upon successful auction of the mineral block,” he said.
Frontrunners in any auction are thought to include India’s largest multinational conglomerates, such as the Adani Group and Reliance Industries. In September 2022, the Adani Group announced a $70bn investment in clean energy by 2030 through the construction of three gigafactories to manufacture clean energy parts. Earlier that year, Reliance Industries made its first move in the lithium sector by acquiring Chinese batterymaker Lithium Werks.
“We have many African states where [private companies extracting resources] has happened before. In every one of these examples — whether the Democratic Republic of the Congo (DRC) or Uganda — you see that it has never benefited the local community or economy. It has always been at their expense”, says Mr Hamdi at The International Interest. “That’s why the emphasis should be on Mr Modi. Is he inclined to impose an environment where Kashmiris will benefit from these resources?”
Solutions such as that posed by Salal village head Mr Singh, whereby residents are offered fair compensation for relocation and are given some of the lithium profits, outline a possible for locals and government to come together. Greater regulation around private companies extracting the resources could also shield Kashmiris from environmental concerns and offer some economic gains.
The successful mining of Kashmir’s lithium will depend on a series of coordinated efforts across the board. Crucially, both the government and private sector must cultivate greater cooperation and trust with local communities in order to access the resources if they are to avoid — or at least minimise — political and social upheaval.
This article first appeared in the April/May 2023 print edition of fDi Intelligence.