India eyes rare earth magnet incentives amid mounting supply concerns

To reduce its dependence on China for rare earth magnets, India is offering financial incentives to companies and drafting a plan to partly subsidise the price gap with Chinese imports

India is in talks with companies to offer financial incentives for producing rare earth magnets locally, according to a report by Reuters. The aim is to gradually build a domestic stockpile and reduce dependency on imports from China.

 

Creating a supply chain for rare earth magnets could take several years, but it is seen as essential to cutting India's reliance on China, especially after Beijing restricted exports of rare earth materials on April 4. These magnets are vital components in electric vehicles, renewable energy systems, and defence technologies.

 

China currently processes around 90 per cent of global rare earth magnet supply. In response, Prime Minister Narendra Modi's government is pushing to boost local manufacturing capacity. The government is considering production-linked incentives for companies.

   

The Ministry of Heavy Industries is drafting a plan that would partly subsidise the price gap between Indian-made magnets and cheaper Chinese imports, added the report quoting sources. This move could help align costs and encourage domestic usage. However, funding details are yet to be finalised. Officials are expected to meet industry representatives next week to discuss the plan further.

 

So far, the Ministry of Heavy Industries has not made any statement.

Existing production insufficient to meet demand

Although India’s state-run IREL has been mining rare earths for years, most of it is directed towards the defence and atomic energy sectors. Supplies for other industries, including automotive, largely come from China.

 

Global automakers have expressed concerns over potential supply chain disruptions. In Japan, Suzuki Motor had to halt production of its Swift model due to the shortage. Back home, India’s auto industry group SIAM has reportedly warned the government of a complete production halt as early as late May or early June.

 

In the short term, the government is planning to send a delegation of auto industry leaders to China to request faster export clearances. "The short-term solution has to be to get Chinese authorities to clear things... A radical shift in supply chain is not possible in the short term," one executive, worried about stock shortages, told Reuters.

Reserves untapped despite global potential

India has the world’s third-largest reserves of rare earth elements — about 6.9 million tonnes — according to the US Geological Survey. However, private investment in mining and processing has remained low.

 

In April, India launched the National Critical Mineral Mission to increase self-reliance in the sector. Exploration has started for neodymium, a key component in magnets used in electric vehicles. But due to the lack of processing facilities, India currently exports some of this material to Japan. Between January and April, nearly $7 million worth of neodymium was shipped to Toyota Tsusho.

 

A person familiar with internal discussions told Reuters that the Prime Minister’s Office has reviewed the potential impact of the rare earth shortage on the country’s electric vehicle sector, which has attracted significant investment.

 

The official also said that the government is considering tariff exemptions for machinery required by local magnet manufacturers. “The government is looking into it critically. They are serious,” the person added.

What are rare earths?

Rare earths are a group of 17 elements found in the Earth’s crust — 15 are lanthanides, while scandium and yttrium make up the rest. Contrary to their name, they are not rare but are difficult and costly to extract and separate, often requiring over 100 processing stages.

 

These elements are crucial to modern technologies, used in electric car motors, wind turbines, smartphones, computers, and even medical equipment like MRI machines.

 

According to experts, China mines around 70 per cent of the world’s rare earth elements, with the remainder produced mainly by the United States, Australia, and Myanmar. China also handles about 90 per cent of the global processing of these materials. It processes all of Myanmar’s production and about half of the US’s output.