Govt must keep non-serious firms out of magnet scheme: Sona Comstar MD

Sona Comstar MD says Centre should consider 'ring-fencing' this sector through safeguard duties in future

The Ministry of Heavy Industries (MHI) must ensure that “non-serious” companies are kept out of its new production-linked incentive (PLI) scheme for rare earth permanent magnets (REPMs) like in some other PLI schemes, said Vivek Vikram Singh, managing director (MD) and group chief executive officer (CEO) of auto component maker Sona Comstar.

 

REPM is a sensitive sector for the country and producing high-quality magnets is highly complex and technologically challenging, he added.

 

Moreover, the Centre should consider “ring fencing” this sector through safeguard duties once REPM production starts in India in a couple of years. This will ensure that the new magnet manufacturing industry does not get killed as soon as it takes birth, Singh told Business Standard.

 

Last Wednesday, the Union Cabinet approved the ‘scheme to promote manufacturing of sintered REPM.’

 

Under this, financial incentives — both capital subsidy and sales-based incentives — will be provided to winning bidders (private players) who set up five manufacturing plants with a combined REPM production capacity of 6,000 tonnes per year.

 

Singh said Sona Comstar is “interested” in bidding under the scheme and a final decision will be taken after consultations within the board.

 

“The government, in its technical evaluation, has to ensure that those setting up REPM manufacturing plants actually know how to make REPMs. In this PLI scheme, you don't want non-serious people, like what has happened under certain other PLI schemes. Manufacturing REPMs is a hard thing to do technologically,” Singh added.

 

He talked of the overall complexity of converting NdPr (Neodymium–Praseodymium) oxide into sintered NdFeB (Neodymium–Iron–Boron Magnets) magnets.

 

He said, “It is not that hard when we are going from rare earth oxides to metallisation. Just like how aluminium oxide is converted to aluminium, neodymium oxide is converted to neodymium. However, then you have to take neodymium metal, sinter it, bond it with iron and put boron. And, if you have to make heavy REPM, you have to add dysprosium and terbium. Then, you alloy and magnetise it. This process is not a child's play.”

 

“You need to have the technology to do it. Ideally, serious people will partner with technology players. I think there are a couple of Indian companies that are claiming that they have indigenous technology. I wish them the best of luck. I hope they do. But the quality would matter,” he added.

 

China currently controls about 90 per cent of the world’s REPM production. These magnets are used in several automobile components, especially in traction motors for electric vehicles.

 

Since April, China has restricted REPM exports to India, impacting domestic automobile production.

 

When asked if India should consider imposing safeguard or anti-dumping duties on imported REPMs, he said, “It will take about two years to set up REPM manufacturing facilities under this scheme. Once production starts, the government has to be watchful that the industry is not killed as soon as it starts. How did the REPM-making industry die almost everywhere? You know what our neighbouring nation did in many sectors. What if it is done again?”

 

“The government is cognizant and aware, but it will do it at the right time. Currently, whatever the price difference is (between the neighbouring nation and India), the operating expense (opex) subsidy (aforementioned sales-linked incentives) is good enough to match it,” he said.

 

“It is a sensitive issue. When the production is about to start is when the timing will be to do enough to safeguard the Indian REPM manufacturing industry. I think, in time, it will be accorded a status of national strategic sector, which would have to be ring fenced so that it does not come under attack again... This is an existential industry and the government is taking it very seriously. I am very impressed by the people I have met and the level of importance it is being given,” he added.

 

Under the Cabinet-approved scheme, about ₹6,450 crore would be given as sales-based incentives and about ₹750 crore as capital subsidy.

 

Since there will be five winning bidders, each of them will receive about ₹150 crore as capital subsidy.

 

Singh said: “I think this capex subsidy of ₹150 crore would not even cover 10 per cent of my capex... Instead of ₹150 crore each, the capex subsidy should have been given in percentage terms. If the other winning bidder gets 15 per cent, I should have got the same 15 per cent. If I am putting in more capex, it means I am more serious. No one increases capex just to get some subsidy.”

 

A company that is putting better equipment and spending more money is more likely to succeed and produce higher grade REPMs, he added.

 

Singh, however, said that he understood the government's viewpoint as there is another side to the whole argument — sectors like consumer electronics need not buy high grade REPMs that require higher capex for production.

 

“Not everyone needs high grade REPMs. Only the automotive sector needs them... Therefore, I am arguing from my interest since I know about the automotive sector, wherein high power density is of immense importance in REPMs as the knock-on effect is on the whole car. So, there is a dichotomy there. But I believe that the capex subsidy should have been higher... You need the best equipment in the world to make the best magnets,” he added.

 

China has recently banned the export of all machinery and equipment that can be used to set up REPM manufacturing plants.

 

Only two other countries — Japan and Germany — manufacture such machinery and equipment. Their price, when bought from Japan or Germany, is easily at least 50 per cent higher than the selling price in China, Singh said.

 

All such equipment and machinery is custom-made, and depends on how high grade REPM a company wants to produce.

 

“Therefore, the capex naturally goes up. That is why I believe the capex subsidy should have been higher,” he added.