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The Indian government is actively pursuing a strategy to bolster domestic manufacturing of rare earth magnets through a substantial Rs 1,345 crore incentive scheme. This initiative is primarily driven by growing concerns surrounding the potential disruption of rare earth magnet supplies, particularly given India's heavy reliance on imports from China. The move signifies a significant step towards enhancing India's self-reliance in a critical component essential for the burgeoning electric vehicle (EV) and electronics manufacturing sectors. Inter-ministerial consultations are currently underway to finalize the implementation details of the scheme, indicating a concerted effort across various government departments to expedite the process. The scheme focuses on incentivizing manufacturers who process rare earth oxides into magnets, demonstrating a strategic approach to fostering value addition within the country. The selection process for eligible manufacturers will be a crucial aspect of the scheme's success, ensuring that the incentives are channeled towards companies capable of contributing significantly to domestic production. Once selected, these manufacturers will be able to immediately commence production, underscoring the government's commitment to a swift and efficient implementation. Minister of Heavy Industries HD Kumaraswamy has indicated that the scheme's approval process would involve the Union cabinet should the total incentive exceed Rs 1,000 crore, highlighting the significance of the initiative at the highest levels of government. The incentive scheme directly addresses India's dependence on imports, with over 80% of the country's approximately 540 tonnes of magnet imports originating from China in the last financial year. This overwhelming reliance on a single source creates vulnerabilities in the supply chain, particularly in light of evolving geopolitical dynamics and trade regulations. China's dominant position in the global rare earth magnet market, controlling over 70% of global Rare Earth Element (REE) production and over 90% of refining capacity, further underscores the need for India to diversify its supply sources and develop its own manufacturing capabilities. The imposition of stricter export controls by Beijing in April 2025 on seven rare earth elements and finished magnets, including mandatory export licenses and detailed end-use disclosures, has amplified concerns about potential disruptions to the supply chain. These controls require confirmation that the products will not be used in defense or re-exported to the US, adding layers of complexity to the export process. Therefore, the Indian government's proactive measures to incentivize domestic production of rare earth magnets are both timely and strategically imperative, designed to mitigate risks and ensure a secure supply of these critical components for key industries.
Rare earth magnets are indispensable components in a wide range of applications, particularly in Permanent Magnet Synchronous Motors (PMSMs), which are extensively used in EVs for their high torque, energy efficiency, and compact size. Hybrid vehicles also rely on rare earth magnets for efficient propulsion, further emphasizing their importance in the automotive sector. While their use in Internal Combustion Engine (ICE) vehicles is primarily limited to electric power steering and other motorized systems, the increasing adoption of EVs and hybrid vehicles is driving up demand for rare earth magnets significantly. The composition of these magnets, typically alloys of rare earth elements such as Dysprosium (Dy), Terbium (Tb), Neodymium (Nd), and Praseodymium (Pr), plays a crucial role in determining their performance characteristics. Elements like Dysprosium and Terbium are particularly important for high-performance applications, as they enhance the magnets' resistance to demagnetization at high temperatures. The incentive scheme is expected to attract investment in the entire rare earth magnet manufacturing value chain, from the processing of rare earth oxides to the production of finished magnets. This comprehensive approach will not only reduce India's dependence on imports but also create opportunities for job creation and technological advancement within the country. The government's focus on incentivizing manufacturers who process rare earth oxides highlights the importance of developing indigenous refining capabilities. Currently, India's refining capacity for rare earth elements is limited, making it heavily reliant on imports for processed materials. By encouraging domestic refining, India can enhance its control over the entire supply chain and reduce its vulnerability to external disruptions. Furthermore, the scheme is likely to stimulate research and development activities in the field of rare earth magnet technology, leading to the development of new and improved magnet materials. This could potentially give India a competitive edge in the global market and contribute to the development of more efficient and sustainable technologies. The success of the incentive scheme will depend on several factors, including the attractiveness of the incentives offered, the ease of doing business in India, and the availability of skilled labor. The government will need to address these challenges effectively to ensure that the scheme achieves its intended objectives. The scheme also needs to be aligned with other government initiatives aimed at promoting domestic manufacturing, such as the Production Linked Incentive (PLI) scheme, to create a synergistic effect and maximize its impact.
The implementation of the rare earth magnet incentive scheme aligns with India's broader strategic goals of achieving self-reliance in critical minerals and reducing its dependence on imports from a limited number of countries. This objective is particularly important in the context of evolving geopolitical dynamics and increasing global competition for resources. Rare earth elements are essential for a wide range of applications, including renewable energy technologies, defense systems, and electronics, making them strategically important for national security and economic development. The government's commitment to promoting domestic manufacturing of rare earth magnets is a clear indication of its recognition of the strategic importance of these materials. The incentive scheme is expected to have a positive impact on the Indian economy, creating new opportunities for investment, job creation, and technological innovation. It will also contribute to the development of a more resilient and diversified industrial base. The scheme is likely to attract both domestic and foreign investment in the rare earth magnet sector, boosting the country's manufacturing capabilities and enhancing its competitiveness in the global market. In addition to incentivizing domestic production, the government is also exploring other options for securing its supply of rare earth elements, such as diversifying its import sources and investing in overseas mining projects. These efforts are aimed at creating a more robust and diversified supply chain, reducing India's vulnerability to disruptions. The government is also working to promote the recycling of rare earth elements from electronic waste, which could provide a sustainable source of these materials and reduce the need for mining. The development of a comprehensive rare earth strategy, encompassing domestic production, import diversification, and recycling, is essential for ensuring India's long-term access to these critical materials. This strategic approach will not only enhance India's economic security but also contribute to its goal of becoming a global manufacturing hub. The rare earth magnet incentive scheme represents a significant step towards achieving this goal, paving the way for a more resilient and self-reliant Indian economy. The success of this scheme is critical to India's ambitions in the EV and electronics sectors.
Source: India readies Rs 1,345-crore incentive scheme for rare earth magnet manufacturing