The government is moving swiftly to reduce its reliance on Chinese supplies of rare earth materials and magnets, with a major investment scheme in the final stages of approval. The government is preparing a ₹3,500–5,000 crore package to scale up local production of rare earth elements and magnet manufacturing.
China’s Export Controls Trigger Global Supply Shock
Since April, China has restricted exports of several rare earth elements and their derivatives, including permanent magnets. This has disrupted supply chains for automakers and tech companies worldwide, including in India, the US, and Europe. These magnets are critical for electric vehicles, wind turbines, and high-tech electronics, making the export controls a major concern for manufacturers.
In May, China slashed its rare earth product exports to a five-year low—down 61% year-on-year to just 2,117 tons. It mainly exported value-added products like magnets, rather than raw minerals.
Indian Industry Responds with Growing Interest
At least five major Indian firms have expressed early interest in taking part in the government’s new scheme, which will operate on a reverse auction model to select beneficiaries. The incentive programme was prompted by a recent ministerial review, which flagged the need for supply diversification and stronger domestic capacity. The automotive industry, heavily dependent on magnets for EV motors and other applications, has been vocal in urging the government to step in following China’s policy shift.
Untapped Reserves, But No Domestic Magnet Output
India holds approximately 6.9 million metric tons of rare earth reserves—ranking fifth globally. However, it currently has no domestic manufacturing capacity for permanent magnets and relies entirely on imports, largely from China. In FY2024–25, India imported over 53,000 metric tonnes of rare earth magnets, government data reveals. The upcoming scheme aims to change that by encouraging local production and value addition.
Regulatory Reforms in the Pipeline
In tandem with financial incentives, the Indian government is preparing to amend the mines and minerals (Development and Regulation) Act to better support its critical minerals strategy. These legal changes are expected to smooth the path for mining and processing rare earths domestically. Officials anticipate that small-scale commercial production of rare earth magnets could begin later this year.
India Moves to End Rare Earth Exports to Japan
In another strategic step, the government directed state-run Indian Rare Earths Ltd (IREL) to terminate a 13-year-old export agreement with Japan. This decision prioritises domestic requirements for rare earth materials. According to business-standard.com, the move strengthens India’s efforts to build self-reliance in rare earth processing and magnet manufacturing.
