As China tightens exports, India steps up with a 7-year incentive plan to boost rare earth magnet manufacturing and secure its EV, electronics, and defence supply chains.
Strategic Push: India’s ₹7,300 Cr Rare Earth Magnet Scheme
India is making a decisive move to build a domestic rare earth magnet ecosystem, with the Expenditure Finance Committee (EFC) approving a ₹7,300 Cr ($822 Mn) incentive scheme. The plan now awaits final clearance from the Union Cabinet.
Designed to catalyse indigenous production, the scheme will help reduce dependence on imports—especially from China, which has restricted exports of key rare earth elements.
Capital-Intensive Backing: What the Scheme Offers
The scheme is structured with a long-term vision over seven years, offering:
- ₹6,500 Cr for capital expenditure, enabling the setting up of end-to-end manufacturing units
- ₹800 Cr for operational expenditure, to support supply chain and production continuity
The support is expected to help India reach a production target of 6,000 tonnes of magnets annually by 2030, enough to meet domestic demand across sectors like EVs, electronics, wind turbines, and defence.
Background: From Modest Proposals to Strategic Scale
The Ministry of Heavy Industries had initially proposed a ₹1,345 Cr scheme in July 2025 to promote local magnet production. This early version focused on:
- Encouraging manufacturers to convert rare earth oxides into permanent magnets
- Providing “end-to-end” incentives for vertically integrated operations
However, recognising the strategic value and urgency, the incentive pool was later expanded—first to ₹5,000 Cr, and now to ₹7,300 Cr.
China’s Ban Triggers Urgency
India’s move is partially in response to China’s April 2025 export ban on seven critical rare earth elements:
- Samarium, Gadolinium, Terbium, Dysprosium, Lutetium, Scandium, and Yttrium
These minerals are crucial for electric vehicles, aerospace, defence electronics, and consumer gadgets. The export ban had significant ripple effects:
- EV manufacturers, like Ather Energy, faced disruptions in sourcing heavy rare earth magnets
- Phased Manufacturing Program (PMP) and PM E-DRIVE compliance took a hit due to material unavailability
Though recent improvements in India-China relations have eased some supply concerns, the long-term strategic risks remain—driving India to build local capacity.
China Seeks Assurances: No Re-exports to the US
A separate report by Economic Times noted that China has demanded end-use guarantees from Indian buyers:
- Magnets should not be re-exported to the US
- Must be used strictly for domestic, non-military applications
- End-user certificates have been submitted by Indian firms, affirming that no weapons of mass destruction (WMD) will be manufactured using the supplied magnets
This underscores the geopolitical tightrope India is walking in balancing access, compliance, and autonomy.
Strategic Significance: More Than Just EVs
Rare earth magnets are strategic materials, not just industrial commodities. They are vital for:
- Electric motors in EVs and drones
- Wind turbine generators
- Radar systems and defence electronics
- Medical imaging equipment like MRIs
By localising magnet production, India aims to secure its energy transition and defence needs while emerging as a reliable global manufacturing hub.
