In a strategic move to reduce dependency on China, the Indian government has approved a comprehensive incentive scheme worth ₹7,280 crore to establish domestic manufacturing capacity for rare earth magnets. The announcement came on Wednesday with the aim of creating annual production capacity of 6,000 tonnes of integrated rare earth magnets within the next three to four years.
Breaking China's Stranglehold on Critical Minerals
Information and Broadcasting Minister Ashwini Vaishnaw revealed that the scheme follows the model of India's semiconductor mission and will make the country self-reliant in rare earth magnet production. "India is among the three countries having highest reserves of rare earth. It will be among the leading producers of permanent magnets in the coming years," Vaishnaw stated during the cabinet announcement.
The timing is crucial given China's dominance over 90% of the global supply chain for these critical components. Rare earth magnets are often described as a 'kill switch' since they provide Beijing significant leverage over importing countries. This vulnerability became starkly evident in April when China imposed export controls on medium and heavy rare earth-related items, citing national security concerns.
Manufacturing Capacity and Incentive Structure
The government will allocate the total manufacturing capacity to five beneficiaries through global competitive bidding. Each selected beneficiary will receive an annual capacity allocation of up to 1,200 million tonnes. The incentive package includes:
- Sales-linked incentives worth ₹6,450 crore distributed over five years
- Capital subsidy of ₹750 crore for establishing manufacturing facilities
The scheme will remain operational for seven years from the date of award, which includes a two-year gestation period for setting up manufacturing plants and five years for incentive disbursement based on actual sales of magnets.
Addressing Supply Chain Vulnerabilities
The urgent need for domestic capacity became apparent when shipments to India were severely affected by China's export controls, creating significant production challenges for Indian automobile manufacturers. Although China began issuing some export licenses to Indian companies in late October, restrictions continue and geopolitical concerns persist.
India's vulnerability is particularly acute due to its complete import dependence and rapidly growing demand driven by expanding markets in consumer electronics, renewable energy, and various industrial applications. Current consumption of these magnets stands at approximately 3,600 tonnes this fiscal year and is projected to double by 2030.
The strategic importance of rare earth magnets extends across multiple critical sectors including automobiles, aerospace, and defense, making domestic manufacturing capability essential for both economic security and national security. This initiative represents India's most significant step toward securing its supply chains for these vital industrial components.
