In April 2025, China’s decision to impose export controls on rare earth elements and other critical minerals sent shock-waves across global industries, particularly in high-tech and green sectors. The move, couched in national security and environmental rhetoric, highlights Beijing’s leverage in geo-economic statecraft.

India’s $240 billion automotive sector, heavily dependent on Chinese-origin rare earths and materials, is experiencing immediate disruptions, delays in EV component shipments, stalled customs clearances, and warnings from auto-manufacturers about production halts. These reaffirm China’s strategic use of economic coercion to shape global supply-chains and geopolitical behaviour.

Given this context, it is important to comprehend India’s supply-chain vulnerabilities across the sectors having adverse economic impact. Correspondingly, the article decodes it using Kraljic Matrix, identifying imported products under four different categories and classifying them based on supply risk and economic impact.

China’s coercive tactics

China’s economic coercion is a strategic tool blending trade, technology, and geopolitics to pressure India. It exploits dependencies through supply disruptions (example, APIs, critical minerals), informal sanctions (seafood bans post-border clashes), and selective investments that avoid strategic sectors. Tactics include customs delays on electronics and auto components, dual-use infrastructure via BRI and “String of Pearls,” and financial exits from firms like Paytm and Zomato. It also arms India’s adversaries and engages in cyber intrusions (example, RedEcho’s 2020 blackout in Mumbai).

Recent export controls on neodymium, dysprosium, gallium and germanium, citing vague “national security” concerns, are part of this playbook, using formal policies with informal opacity to create plausible deniability while exerting coercive pressure outside WTO constraints. Selective customs delays, even after the DGFT issued end-user certificates to 17 Indian auto-component manufacturers, are aimed at manipulating prices through state-owned firms, thereby destabilising supply-chains without breaching formal rules and enabling coercion with strategic ambiguity.

China’s motives span several fronts: retaliating against political stances (example, over Taiwan or the South China Sea), deterring supply-chain diversification, and asserting dominance in future-facing technologies like electric vehicles, solar energy, and semiconductors. By mandating exhaustive disclosures on end uses, quantities, and product outputs, Beijing seeks to define new norms of industrial governance with the ‘Middle Kingdom’ as the fulcrum of its geostrategic statecraft. Within this schema, economic coercion emerges not merely as a tool of influence, but as an instrument of techno-industrial ascendancy. To mitigate vulnerabilities and build long-term resilience, India must shift from reactive crisis responses to a strategic procurement approach. The Kraljic Matrix, which classifies imports along the axes of supply risk and economic impact (see figure), offers a structured tool to prioritise policy actions, guide investment, and focus diplomacy. It considers items having more than 50 per cent share of China as a supply source.

Strategic imports include products such as pharmaceutical ingredients, electrical, electronics and industrial machinery (HSN:29,83,84,85). These are essential to India’s energy transition, industrial modernisation, and technological sovereignty. To secure their supply, India should formalise long-term offtake agreements with resource-rich countries like Australia, the DRC, and Argentina. Public sector undertakings should lead investments in overseas assets. Simultaneously, domestic capacities for refining, magnet production, and battery-grade material processing should be scaled-up under the oversight of a proposed National Critical Minerals Mission.

Bottleneck items such as ceramic products, base metals and cermets, glassware, and articles of iron and steel (HSN:69,81, 70,73), though used in smaller volumes, are critical for manufacturing and defence supply chains. India should fast-track bilateral cooperation with countries like Japan, the EU, and the US to ensure stable access. At the same time, promoting e-waste recycling and investing in R&D on photonics and compound semiconductors can reduce external dependence.

Leverage items include textile products, footwear and musical instruments (HSN: 54,58, 60, 64, 92), where India has or can build strong manufacturing capacities. These offer room to negotiate favourable import terms with other countries while expanding domestic production. Rationalising duties, streamlining GST, and supporting downstream manufacturing such as EV wiring and motor parts can boost competitiveness.

Non-critical importable items like umbrellas, sports toys, clocks and furniture (HSN:66, 95, 91, 94) can be sourced flexibly or domestically produced. India should liberalise mining and licensing norms under the Mines and Minerals Act, and encourage MSMEs to plug into low-risk supply chains, reducing import dependence and generating local jobs. By aligning trade, industrial, and foreign policy through a Kraljic-informed matrix, India can address such economic coercion in future and transform dependencies into strategic capabilities.

Way forward

India’s experience with China’s mineral coercion underscores the urgent need for a proactive, sovereign strategy that elevates mineral security to the level of food and energy security. A cohesive National Strategy for Mineral Security, anchored by the ₹16,300 crore Critical Mineral Mission, should integrate exploration, R&D, strategic offtake contracts, and recycling. Institutional reforms should be complemented by a robust diplomatic posture, leveraging platforms like the MSP, Quad, and IPEF, to forge resilient supply partnerships, as seen in India’s MoU with the US for gallium and germanium.

Domestically, India should go beyond extraction to build end-to-end value chains, especially in refining lithium, cobalt, and rare earths. Industrial examples such as the Vizag magnet plant serve as scalable models. Private sector risk can be lowered through transparent auctions, AI-driven geological surveys, and innovative financing. Lastly, embedding circular economy principles via PLI incentives for recycling and urban mining is equally critical.

India must take up this issue at all geostrategic forums (BRICS, SCO, G-20) soliciting supply-chains free from economic coercion. India should also invest in materials science to develop substitutes for rare earths, and create a Strategic Minerals Reserve, overseen by an empowered inter-ministerial body. Chinese coercion can be converted into a strategic advantage.

The writer is Professor/Head, IIFT New Delhi. Views are personal

Published on June 16, 2025