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In February 2023, the Indian government announced the discovery of a massive lithium deposit in the Jammu and Kashmir (J&K) union territory. Because lithium is a key building block of renewable energy and transport systems, particularly electric vehicles and batteries, the find could help India fulfill its ambitions to decarbonize its own economy and export green tech. But as of July 2024, two attempts to auction development rights to the deposits have now failed. According to a Reuters source, the most recent auction did not elicit a single bid, and the path forward is likely for the Indian government to conduct additional exploration of the deposit on its own dime.
The euphoria that initially followed the discovery—which theoretically catapulted India into sixth place in terms of lithium resources globally and was touted as a boon to India’s aspirations to develop electric vehicle and renewable energy industries—has been replaced by disappointment. To understand why, it’s important to know India’s J&K lithium bonanza is on unstable footing, literally and figuratively. And since lithium prices have tumbled since the discovery was announced, these factors have made the J&K deposits significantly less attractive.
Jammu and Kashmir, one of India’s two Muslim-majority territories[1], has long been a locus of political volatility and sectarian violence. It is not clear whether its instability was a factor in making private investors wary. A more fundamental problem is that the lithium resources in J&K are found in clay deposits, co-occurring with other minerals. Clay soils are known for expanding and contracting as their water content changes, alternating between soft and pliable and hard and brittle. As any homeowner whose property sits on clay can attest, it can be a headache. And homes don’t weigh nearly as much as mining facilities and equipment, which is one reason clay-situated lithium has been difficult to commercialize: Operating and maintenance costs are higher.
Extracting lithium from clay is also a chemical-intensive process, potentially leading to higher localized environmental impacts than other recovery methods such as brining and even hard-rock excavation. Like other links in the green energy supply chain, clay-based lithium extraction is advancing rapidly at the technological frontier, with Tesla having patented a salt-based extraction method that is reportedly much cheaper and more environmentally friendly. But these methods are as yet unproven in the field and at scale. These factors combine to make the J&K lithium deposits comparatively costly to recover.
When lithium was trading at more than $415,000 per metric ton, as it was when the deposits were announced, these technical obstacles might have been surmountable. But by the time the first auction failed, the price had fallen by almost 60 percent. By the deadline for the second round of bids(May 14 of this year), the price had fallen even further (see figure below). The reasons for the run-up and subsequent collapse of lithium prices from 2021 to 2024 are debatable, but most observers point to a mixture of slower-than-anticipated adoption of electric vehicles and the high prices themselves, which enticed more producers into the market, resulting in a boom-and-bust cycle. At lower prices, higher-cost producers simply cannot compete profitably. This same dynamic has US miners and Senators calling for protectionist policies or two-tiered pricing based on labor and safety standards to create a more favorable domestic price environment.
Low prices and high extraction costs—both economic and environmental—would be strong headwinds for any mining project. But the J&K lithium deposits also face a challenging political economy. They are located approximately 30 miles from the Line of Control separating India-controlled J&K from Pakistan-controlled Azad J&K, with both countries claiming sovereignty over the entire territory. Kashmir is majority Muslim, but the lithium deposits are located in a river valley in the Reasi district, which is half Muslim and half Hindu, nestled atop the most volatile identity-based fault line in Indian politics.
J&K accounted for just 1 percent of India’s population but 35 percent of all armed conflict-related deaths in 2023.[2] In June 2024, nine Hindu pilgrims were killed and 33 injured in the Reasi district when their bus plummeted into a gorge after a militant attack. The violence is not one-sided. Indian troops and police have been implicated in the deaths of hundreds of suspected Muslim militants, though Human Rights Watch has reported locals have complained that many suspected militants were in fact Muslim civilians. More widely, HRW and Amnesty International have alleged India’s ruling Bharatiya Janata Party (BJP) is waging a program of anti-Muslim actions and rhetoric, including extrajudicial killings, imprisonments, and land seizures.
Religious tensions in the region predate the lithium discovery, but the presence of “white gold” has added an additional layer. Just after the discovery was announced, the People’s Anti-Fascist Front (PAFF), a local Muslim militant group, warned that it would not allow the “theft” of the resources by the Indian government. Though the PAFF is a small group, India’s Home Ministry considers the PAFF to be a proxy for Jaish-e-Mohammed, a Pakistan-based Islamist militant group. If low prices and high extraction costs created headwinds, adding the very real prospect of militant violence—and the wider counterterrorism campaign and likely civilian casualties that would come with it—creates a gale.
To date,[3] none of the major lithium firms have spoken on record about the auctions or their reasons for declining to bid. India is a potentially vast market, so firms may be exercising discretion and declining media requests in hopes that either market conditions or political realities on the ground will improve. But these fundamentals—price and perceived risk—are inherent to valuing any potential mineral asset.
In the short and medium term, this development means little for Prime Minister Narendra Modi’s aspirations for India to become a major player in electric vehicle supply chains. The J&K lithium deposits were years if not decades away from coming to market even if the rights had been sold. For the time being, India will have to rely on global markets to source lithium and most other raw materials, though a second, smaller lithium block in Chhattisgarh was successfully auctioned on June 24. Over the longer term, the potentially vast J&K resources could provide a hedge against mounting geopolitical risk—but that might require a stable political solution to the J&K question. And that has eluded India, Pakistan, and most importantly Kashmiris of all faiths for nearly 80 years.
Notes
1. The other is Lakshadweep.
2. Author’s calculations based on the Uppsala Conflict Data Program’s Georeferenced Event Dataset, version 24.1.
3. July 24, 2024.
Data Disclosure
This publication does not include a replication package.
