For the longest time, Argentina has been famous for its beautiful football, shambolic economy, and populist politics. More recently, it has occupied global conversation for somewhat different reasons. The first is a radical, libertarian president, Javier Milei, who has promised to fundamentally restructure a perennially sick economy—which went from being one of the world’s richest at the turn of the 20th century to decidedly mediocre in the 21st. The second is its tremendous wealth in natural resources.
The country is a third of the lithium triangle – along with Bolivia and Chile – and is home to the second-largest shale oil basin in the world after Texas and New Mexico in the United States. No Indian Prime Minister has been to Argentina for a bilateral visit in 57 years. Now, Argentina matters. And that is why Narendra Modi went there on 5 July.
The combination of a resource-rich economy and liberal economic policies is a powerful one. Every country in the world is searching for resources. At the same time, resource nationalism is on the rise, and countries are not prone to be liberal in sharing these resources. The evolution of technology has meant that the global economy has taken a decisive turn toward a scenario that’s going to be mineral and resources-intensive. The technologies of the energy transition, whether renewable energy infrastructure or electric vehicles, require more minerals, including lithium.
The technologies and infrastructure associated with Artificial Intelligence, such as big data centres, need a lot of minerals, including copper. At the same time, there is a natural growth in conventional uses for minerals, metals, and energy. And there is an ever-increasing gap between supply and demand.
India’s mineral ambition
Like other major economies, India, too, is searching to secure a steady supply of critical minerals for its manufacturing ambition. It is certainly interested in acquiring some of Argentina’s lithium. The country, after all, has the third-largest lithium reserve in the world.
But it should also provoke two strands of thinking for policy in India. First, it’s time to give up resource-pessimism. India has a rich geology comparable to some of the best in the world, including Canada and Australia. It’s just that we haven’t explored sufficiently under our surface. We need to give exploration a big push. For that, exploration policy needs to be unentangled from auctions. It is not possible to auction something unknown. It is also time to go beyond relying on two state-owned companies for mineral exploration. The private sector needs to participate. But it will only do so if what it finds during exploration can be freely monetised.
Second, India needs to capture the potential in smelting. Mined minerals are not usable until they are processed in smelters into metals, using a large amount of energy. The advanced economies have been reluctant about smelters and do not have the competitiveness for a business that is low on margins.
China has captured a very big chunk of the entire processing part of the value chain for critical minerals. India must become a processing hub too. The government can think of progressive policies, including easy access to land, fast clearances, and some production-linked support for smelters, whether owned by domestic or foreign investors.
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Lessons from Argentina
Argentina’s recent experience in tapping oil from the Vaca Muerta shale basin also holds important lessons. There has been a massive rise in output from the time Milei became president. And that is largely on account of a new policy regime that governs all large investments, including oil. The regime axes most aspects of government control, including price caps and restrictions on the repatriation of profit. But significantly, it guarantees regulatory stability and tax breaks for 30 years. A moderate fiscal regime with long-term certainty is key to growth in this sector.
The Government of India has amended its laws in oil to align them with global best standards. For the first time, it is prioritising production over revenue. If it can cut down the time taken for clearances or move to a system of self-certification, India could yet have an oil and gas boom, bigger than Argentina’s.
The importance of unlocking the resources sector lies in the boost it can give to GDP, jobs, and government revenue. In fact, President Milei is banking on the revenue generated from the resources sector to support Argentina’s budget and create fiscal room to cushion the impact of his tough structural reforms.
For India, which always faces pressure on the fiscal front, unlocking India’s full resource potential can create the space for more spending. To the government’s credit, it has been very responsible with fiscal management, but given the frequent calls for welfarism, additional resources (without increasing taxes on individuals or companies) can help a sustainable spend, and in turn, help create more fertile ground for the next round of market reforms.
The author is Chief Economist, Vedanta. His X handle is @nayyardhiraj. Views are personal.
(Edited by Zoya Bhatti)