India's Ministry of Heavy Industries is crafting a sophisticated incentive scheme to attract companies into domestic rare earth magnet production, as per Reuters. The government is considering production-based fiscal incentives that would make Indian manufacturing economically viable.
05 Jun 2025 | 1152 Views | By Autocar Professional Bureau
The global supply chain for critical materials has been thrust into uncertainty following China's implementation of new export restrictions on rare earth magnets. According to a June 5 Reuters report, India is now actively developing a comprehensive strategy to counter this challenge by establishing domestic production capabilities and reducing its ...
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The global supply chain for critical materials has been thrust into uncertainty following China's implementation of new export restrictions on rare earth magnets. According to a June 5 Reuters report, India is now actively developing a comprehensive strategy to counter this challenge by establishing domestic production capabilities and reducing its dependence on Chinese supplies.
China's export curbs affect not only mined minerals but permanent magnets and other finished products that will be difficult to replace, creating ripple effects across multiple industries globally. Shipments of the magnets, essential for assembling everything from cars and drones to robots and missiles, have been halted at many Chinese ports while license applications make their way through the Chinese regulatory system.
For India specifically, the impact is immediate and severe. Reuters reports that the Society of Indian Automobile Manufacturers (SIAM) has warned the government that production could "come to a grinding halt" within a timeframe starting from the end of May or early June. Indian auto production could grind to a halt within days due to Chinese export restrictions on rare earth magnets, highlighting the critical nature of this supply disruption.
According to the Reuters report, India's Ministry of Heavy Industries is crafting a sophisticated incentive scheme to attract companies into domestic rare earth magnet production. The government is considering production-based fiscal incentives that would make Indian manufacturing economically viable. Particularly innovative is the proposal to partially fund the price difference between domestically produced magnets and Chinese imports, effectively achieving cost parity to boost local demand.
This approach recognizes that simply encouraging domestic production isn't sufficient—the economics must work for companies to make the transition. By bridging the cost gap, India aims to create a sustainable domestic market that can eventually compete independently with Chinese suppliers.
India possesses significant untapped potential in this sector. According to the U.S. Geological Survey data cited by Reuters, India holds the world's third-largest reserves of rare earths at 6.9 million tons. However, the country currently mines only a fraction of these resources due to limited private sector investment.
The state-run Indian Rare Earths Limited (IREL) has been mining these materials for years, but primarily for atomic energy and defense applications. Most commercial supplies for other industries still come from China, representing a massive opportunity for expansion.
Reuters notes that India launched the National Critical Mineral Mission in April, demonstrating the government's commitment to achieving self-reliance in this strategic sector. The mission includes exploration for neodymium, a rare earth element widely used in automotive magnets. Interestingly, India currently exports neodymium to Japan due to its lack of domestic processing capability—a clear indication of the potential for value-added manufacturing within the country.
The Reuters report reveals that India exported nearly $7 million worth of rare earth materials to Toyota Tsusho between January and April, highlighting both the existing supply relationships and the missed opportunity for domestic value addition.
While building domestic capabilities is the long-term solution, India recognizes the immediate need for crisis management. Reuters reports that the Ministry of Heavy Industries plans to send a delegation of auto industry executives to Beijing to push for faster approvals of pending shipments. Industry officials acknowledge this as the only viable near-term solution.
One executive quoted by Reuters emphasized the urgency: "The short-term solution has to be to get Chinese authorities to clear things," adding that "A radical shift in supply chain is not possible in the short term." This pragmatic approach balances immediate survival needs with long-term strategic independence.
The timeline for potential disruption is extremely tight. According to Reuters, some automotive companies and their suppliers may be able to stretch operations until the end of June, after which the situation becomes "really scary." The impact extends beyond electric vehicles to affect all automotive production, given the widespread use of rare earth magnets in modern vehicles.
The crisis has particular significance for India's rapidly growing electric vehicle sector, which has attracted billions of dollars in investment. Reuters reports that Prime Minister Modi's office discussed the magnet crisis's impact on the EV sector this week, considering potential tariff exemptions for imports of manufacturing equipment required by domestic producers.
China first weaponized rare earths in 2010 when it banned exports to Japan over a fishing trawler dispute, and the current restrictions represent a continuation of this strategy. China controls approximately 90% of rare earth magnet processing globally, according to Reuters, giving it enormous leverage over global supply chains.
The April 4 implementation of China's new export licensing requirements has created uncertainty even beyond the immediate supply disruptions. The new Chinese regulatory policy requires exporters to obtain licences and submit detailed end-use documentation to ensure the materials are not used for military or restricted purposes, adding bureaucratic complexity to what was previously routine trade.
India's response to this crisis represents a broader shift toward supply chain resilience and strategic autonomy. The combination of immediate diplomatic engagement, medium-term financial incentives, and long-term capacity building demonstrates a comprehensive understanding of the challenge's multiple dimensions.
The success of this strategy will depend on execution speed and the government's ability to create an attractive investment environment for private companies. Given that building such supply chains could take years, according to Reuters, India's commitment to this path represents a significant long-term strategic decision that extends far beyond the current crisis.
This situation underscores the vulnerability of globalized supply chains and the strategic importance of critical materials in modern manufacturing. India's response may serve as a model for other countries seeking to reduce dependence on concentrated supply sources for essential materials.