India’s rare earth diplomacy begins in Indonesia

Prime Minister Narendra Modi’s visit to Indonesia on July 7–8 could emerge as one of the most consequential bilateral engagements of his third term. While India and Indonesia have long celebrated their shared civilisational heritage and expanding economic ties, the visit carries a significance that extends far beyond traditional diplomacy. It offers an opportunity to build a strategic partnership in rare earths and critical minerals—resources that are increasingly becoming the foundation of the emerging high-tech era. 

Civilisational links of India and Indonesia stretch back over two millennia through maritime trade and the spread of Hinduism, Buddhism and Islam. Economic relations have also grown steadily. Bilateral trade stood at US$28 billion in 2024–25. Indonesia is India’s largest supplier of crude palm oil and its second-largest supplier of coal, while India exports petroleum products, engineering goods, automobiles, telecommunications equipment and steel products. Indian companies have invested over US$1.5 billion in Indonesia, while Indonesian investments in India continue to expand.

Yet, despite these impressive figures, the relationship has remained largely transactional. Prime Minister Modi’s visit is poised to transform this into a strategic partnership centred on collaboration over rare earths and critical minerals, widely conceived as the oil of the twenty-first century.

The centrepiece of the visit is expected to be a memorandum of understanding between PERMINAS, Indonesia’s newly established state-owned enterprise created to spearhead the country’s rare earth and critical minerals strategy, and an Indian consortium comprising Midwest Group, which has decades of experience in mining, technology development and supply chain management and the Non-Ferrous Materials Technology Development Centre (NFTDC), a Government of India tech center with the domain expertise. PERMINAS will leverage mineral resources from Indonesia’s tin industry, particularly those of PT Timah, the state-owned enterprise operating in the mineral-rich Bangka-Belitung Islands, where heavy rare earth elements are produced as valuable by-products of tin mining.

Rare earth elements and critical minerals have become indispensable inputs for advanced defence platforms, electric vehicles, semiconductors, renewable energy systems, artificial intelligence, telecommunications, and aerospace. Countries that control these technologies and supply chains will leverage significant technological, geopolitical and geoeconomic advantages over the coming decades.

At present, however, the global rare earth ecosystem—from mining and refining to magnet manufacturing—remains overwhelmingly concentrated in China, which accounts for a dominant share of global processing and permanent magnet production. Recent export controls on rare earths and related technologies have underscored the strategic risks associated with excessive dependence on a single source. For India, securing reliable access to critical minerals is no longer just an economic priority; it is a strategic imperative that underpins technological sovereignty, industrial resilience and, ultimately, national security. 

The rare earth value chain comprises three distinct segments. The upstream sector involves exploration, mining, and mineral beneficiation; the midstream—the most technologically demanding stage—encompasses the separation of individual rare earth elements and the production of high-purity rare earth oxides (REOs), which serve as feedstocks for advanced materials. At the same time, the downstream converts these oxides into rare earth metals, alloys and high-performance permanent magnets.

Indonesia is richly endowed with upstream mineral resources, particularly heavy rare earth elements (HREE) critical for defence systems and high-value industrial products. Although India has significant rare earth deposits, these are mostly Light rare earth elements (LREE). India also has a severe shortage of several critical minerals that supplement rare earth elements, necessitating imports of these minerals along with HREE. Without assured access to these materials, India’s ambitions for technological leadership, industrial self-reliance and national security strategies will remain constrained.

The partnership also reflects an important evolution in Indonesia’s foreign policy. Traditionally guided by the principle of strategic autonomy, Jakarta is increasingly pursuing what may be termed “strategic incorporation”—selectively integrating foreign investment, technology, markets and industrial partnerships into its national development strategy without compromising policy independence. Collaboration with India fits comfortably within this approach because it is based on co-development and value addition rather than resource extraction alone. This is amply reflected in the words of Gilarsi W. Setjiono, President Director of PERMINAS, who said” Indonesia brings significant geological potential and a growing ambition to move downstream into processing, materials, energy, and technology-based industries. India, on the other hand, has strong scientific, industrial, engineering, institutional, and market capabilities. A well-structured collaboration between the two countries could lead to a shared destiny”.

Echoing similar sentiment, Sandeep Chakravorty, Indian Ambassador to the Republic of Indonesia, observed, “India is a comprehensive partner which seeks to build Indonesian capabilities and skills. India brings not only capital but also know-how. Our objective is to contribute to a self-reliant Indonesia along the lines of Atmanirbhar Bharat”.

For India, however, this initiative should not be viewed merely as a commercial agreement between an Indonesian state enterprise and an Indian consortium; It should be recognised as a national mission. Securing rare earths and critical minerals cannot be left to individual companies alone. It requires a coordinated national effort involving diplomacy, industry, research institutions, and public-sector enterprises. The Ministry of External Affairs should provide sustained diplomatic support to the initiative and facilitate long-term institutional engagement with Indonesia. The Ministry of Mines and the Ministry of Heavy Industries should integrate such partnerships into India’s broader critical mineral strategy and ensure policy coordination across departments. Public sector institutions such as Indian Rare Earths Limited (IREL), Khanij Bidesh India Limited (KABIL), the Geological Survey of India, Mineral Exploration and Consultancy Limited (MECL), research organisations and specialised technology institutions should be encouraged to join this consortium. 

Their involvement would bring a comprehensive strategy and a resilient national ecosystem. This can serve as a template for future collaboration with other ASEAN countries, such as Laos, Cambodia, and Thailand, which are also richly endowed and eager to follow the Indonesian model. Such a strategy will infuse a greater dynamism into India’s Act East policy. If India and Indonesia seize this opportunity, PM Modi’s visit may well be remembered as the moment when two ancient civilisations transformed their shared past into a strategic partnership for the technologies of the future. 

The twentieth century belonged to nations that secured energy. The twenty-first century will belong to those who secure rare earth and critical minerals and the technologies they enable. India’s partnership with Indonesia could well be the beginning of that journey.

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