GS Paper: GS3-12.Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

Introduction

Rare earth minerals form the backbone of modern industries, from smartphones and electric vehicles to solar panels and missiles. Yet, China controls nearly 70% of global mining and 90% of processing, weaponizing this dominance through export restrictions and technology control. The recent spate of US-led agreements with Australia, Thailand, and Malaysia signals a tectonic shift in global supply chain strategy aimed at ending China’s monopoly.

Why in the News

The US has signed multiple agreements to diversify sourcing of rare earth minerals, a sharp contrast to past decades when Western nations relied on China’s cheap supplies. This urgency arises as China restricts exports and machinery transfers, challenging global industrial autonomy. India too has proposed a ₹7,350-crore scheme to build domestic capacity, underscoring how critical and vulnerable this resource chain has become.

China’s Rare Earth Monopoly

1. Dominance in Production: China accounts for 70% of global rare earth mining and 90% of processing, having invested heavily since the 1990s.
2. Weaponization of Supply Chains: China uses export restrictions and licensing to maintain strategic leverage, especially in high-tech and defense manufacturing.
3. Environmental Cost Advantage: Western nations avoided rare earth mining due to pollution concerns, allowing China to gain mastery in low-cost extraction and processing.
4. Technology Restriction: Beijing limits the transfer of technology and machinery, preventing rivals from catching up.

Why Rare Earths Matter

1. Strategic Applications: Essential for EV batteries, solar panels, semiconductors, consumer electronics, and defense equipment (missiles, fighter jets, submarines).
2. Energy Transition Role: Critical to clean energy technologies and electrification, making them central to global climate goals.
3. Industrial Dependency: Nearly all modern batteries and chips depend on rare earth inputs, linking them to national security and supply resilience.

The US-Led Diversification Push

1. Recent Agreements: The US signed deals with Australia, Thailand, and Malaysia to source critical minerals and reduce Chinese dependence.
2. Strategic Vision: Seeks a transparent and diversified market by 2030, per Lowy Institute projections.
3. Optimism vs Reality: Despite US optimism, experts predict a decade-long transition before tangible independence from China.
4. Australia’s Role: Emerging as a long-term alternative supplier, though benefits will accrue only post-2030.

India’s Position and Challenges

1. Limited Domestic Reserves: India lacks sufficient rare earth resources and depends on imports from South America and Africa.
2. Policy Push: A ₹7,350-crore scheme aims to boost domestic extraction and processing capacity.
3. Technology Constraints: China’s machinery restrictions hinder India’s expansion; Japan and Germany’s tech is available but costly.
4. Strategic Need: India’s electronics and defense manufacturing goals hinge on securing reliable rare earth access.

Why China’s Grip Is Hard to Break

1. Cost Advantage: China’s large-scale, low-cost production undercuts global competitors.
2. Controlled Liberalization: By restricting but not banning exports, China maintains market share while disincentivizing new investments abroad.
3. Decades of Lead: Its dominance results from 30 years of investment, while other nations are only beginning their efforts.
4. Market Manipulation: Price control and selective technology transfer ensure continued dependence.

Economic and Environmental Trade-Offs

1. High Environmental Cost: Rare earth mining involves radioactive waste and groundwater contamination.
2. Policy Dilemma: Nations balancing green commitments against strategic autonomy face a major contradiction.
3. Australia’s Advisory: Buyers urged to prioritize secure supply chains over the lowest available price, signaling a policy shift from cost to security.

Conclusion

Breaking China’s rare earth stranglehold is not merely an economic goal but a geopolitical necessity. It will require sustained investments, technology-sharing frameworks, and environmental innovation. While the US, India, and allies are recalibrating, China’s cost, experience, and ecosystem advantages mean its dominance may persist until at least 2030. The world’s clean energy and defense ambitions hinge on how successfully nations can build resilient, transparent, and diversified critical mineral supply chains.

PYQ Relevance

[UPSC 2018] With growing energy needs should India keep on expanding its nuclear energy programme? Discuss the facts and fears associated with nuclear energy.

Linkage: Rare earths are critical for renewable and clean energy technologies (e.g., EVs, solar, wind). This question relates to energy diversification and sustainability, highlighting material dependencies that influence India’s clean energy choices.

Introduction / Context

• Recent Disasters: In 2025, three major industrial accidents — the Sigachi Industries chemical blast in Telangana (June 30), the Gokulesh Fireworks explosion in Sivakasi (July 1), and the Ennore Thermal Power Station collapse in Chennai (September 30) — killed nearly 60 workers within three months.
• Scale of the Problem: According to the British Safety Council, one in four fatal workplace accidents globally occurs in India, though actual figures are higher due to underreporting in informal sectors.
• Structural Failure: These tragedies expose a systemic breakdown in safety enforcement, where profit maximisation overrides worker protection.

Why Workplace Accidents Occur

1. Preventable Failures: Most industrial accidents occur due to negligence in hazard prevention such as poor equipment design, absence of alarms, and lack of maintenance.
2. Telangana Case: The chemical reactor was operated at twice its safe limit, safety alarms failed, and untrained contract workers were deployed without records or protection.
3. ILO Findings: The International Labour Organization (ILO) attributes most accidents to cost-cutting by managements, not random chance or individual mistakes.
4. Human Error Myth: Employers blame workers for “human error”, but systemic issues like excessive work hours, fatigue, and exploitative conditions are the root causes.
5. Lack of Safety Oversight: The absence of mandatory inspections and safety officers allows hazardous practices to continue unchecked.

Evolution of Workplace Safety Laws in India

1. Colonial Roots: The first Factories Act of 1881 was enacted under British rule to regulate working hours and conditions in textile mills.
2. Post-Independence Framework: The Factories Act of 1948 became the foundation of India’s occupational safety regime, covering licensing, rest periods, and machine maintenance.
3. Bhopal Legacy: The 1987 Amendment followed the Bhopal Gas Tragedy, introducing stricter safety clauses but failing in enforcement due to bribery and falsified records.
4. Compensation Mechanisms: The Workmen’s Compensation Act (1923) and Employees’ State Insurance Act (1948) provide for injury and income loss but remain financially inadequate.
5. Lack of Criminal Accountability: Employers rarely face criminal charges for fatal negligence; compensation is often paid through government relief funds, not company liability.

Post-Liberalisation Deregulation and Impact

1. Shift in Policy: Since the 1990s, India’s industrial policy has prioritised labour flexibility over worker protection.
2. Self-Certification: States like Maharashtra (2015) allowed industries to self-certify compliance, effectively dismantling inspection-based oversight.
3. Ease of Doing Business: Safety rules are now portrayed as regulatory hurdles, diluting mandatory standards for inspection and reporting.
4. Contract Labour Expansion: Informal and outsourced workforces dominate hazardous sectors, operating without registration or legal protection.
5. Erosion of State Capacity: Labour departments have been underfunded and depowered, reducing preventive enforcement to mere paperwork.

The Occupational Safety, Health and Working Conditions (OSHWC) Code, 2020

1. Purpose: Consolidates 13 older laws including the Factories Act (1948), Mines Act (1952), and Contract Labour Act (1970) into one unified framework.
2. Scope: Applies to all workplaces with 10 or more workers and covers mines, docks, and factories.
3. Employer Duties: Mandates risk-free work environments, medical check-ups, and welfare amenities, with provisions for National and State Safety Boards.
4. Penalties: Prescribes monetary penalties for violations and limited punishment for accidents causing death.
5. Criticism: The Code converts safety from a statutory right to administrative discretion, weakening enforceability and inspection mechanisms.

Other Key Labour Codes:

1. Code on Wages (2019): Ensures minimum wages, equal pay for equal work, and timely payment, reducing wage-related exploitation.
2. Industrial Relations Code (2020): Governs strikes, layoffs, and retrenchments, focusing on maintaining employer–employee harmony under managerial control.
3. Social Security Code (2020): Extends healthcare, pension, and insurance benefits to gig and platform workers, integrating fragmented welfare laws into one structure.

Current Trends and Emerging Risks

1. Extended Working Hours: Post-pandemic, States have increased daily limits and reduced rest periods, heightening fatigue-related risks.
2. Case Example: Karnataka (2023) made longer shifts permanent, undermining rest and recovery norms critical to accident prevention.
3. Informalisation: Over 90% of India’s workforce operates informally, with no safety records or accident insurance, leaving families uncompensated.
4. Weakened Enforcement: Inspections replaced by self-reporting allow companies to evade accountability for safety violations.
5. Outcome: India remains among the world’s most dangerous industrial economies, with preventable deaths treated as operational costs.

Institutional and Governance Failures:

1. Policy Shift: The State’s role has shifted from enforcer to facilitator, prioritising investment over worker welfare.
2. Diluted Inspections: Labour departments, understaffed and politically pressured, no longer conduct surprise or independent audits.
3. Token Punishment: Accident inquiries result in minor fines or temporary closures, not criminal prosecutions.
4. Moral Blindness: Treating workplace deaths as “inevitable” reflects a moral and administrative collapse in valuing human life.

Way Forward: Restoring Safety as a Fundamental Right

1. Safety as Right: Workplace safety must be reinstated as a non-negotiable constitutional right, not a regulatory privilege.
2. Reinforce Inspection: Mandatory and surprise inspections must replace self-certification to ensure compliance.
3. Criminal Liability: Employers responsible for preventable deaths must face criminal prosecution, not ex gratia settlements.
4. Economic Logic: Studies confirm that safe workplaces increase productivity and profitability, contradicting industry claims of cost burdens.
5. Moral Imperative: Until the State enforces accountability, transparency, and legal deterrence, India’s workers will remain collateral casualties of deregulated growth.

 

[UPSC 2024] Discuss the merits and demerits of the four ‘Labour Codes’ in the context of labour market reforms in India. What has been the progress so far in this regard? Linkage: The topic of the erosion of workers’ rights is highly important for the upcoming UPSC Mains, particularly because it connects statutory, economic, and social issues, making it a favorite for analytical questions