The Indian government has taken a decisive step toward achieving self-reliance in critical materials by approving a substantial incentive scheme worth ₹7,280 crore. This initiative aims to establish domestic manufacturing capacity for integrated rare earth magnets, crucial components for numerous industries including automobiles, aerospace, and defense.
Breaking China's Strategic Dominance
China currently controls approximately 90% of the global supply chain for rare earth magnets, creating what industry experts describe as a 'kill switch' that gives Beijing significant leverage over importing nations. This vulnerability became starkly evident in April when China imposed export controls on medium and heavy rare earth-related items, citing national security concerns.
The move caused major supply disruptions worldwide, with Indian automobile manufacturers particularly affected. Domestic production faced significant challenges as companies rely heavily on these magnets from China for both internal combustion engines and electric vehicles. Although China began issuing export licenses to Indian companies in late October, some restrictions remain, keeping supply chains vulnerable.
Scheme Details and Implementation
The newly approved scheme targets establishing annual manufacturing capacity of 6,000 tonnes of integrated rare earth magnets within India. The government will allocate this total capacity to five beneficiaries through a global competitive bidding process, with each beneficiary receiving up to 1,200 tonnes annually.
The financial package includes sales-linked incentives of ₹6,450 crore spread over five years and a capital subsidy of ₹750 crore for establishing manufacturing facilities. The scheme will remain operational for seven years from the date of award, comprising a two-year gestation period for facility setup followed by five years of incentive disbursement based on actual sales.
Growing Demand and Strategic Importance
India's dependence on imports, predominantly from China, comes at a time when demand for rare earth magnets is rapidly increasing. The expanding markets for electric vehicles, consumer electronics, renewable energy, and various industrial applications are driving this growth. Current consumption stands at approximately 3,600 tonnes this fiscal year and is projected to double by 2030.
This incentive scheme represents part of a broader strategic effort to diversify sourcing of rare earth materials, particularly given their geopolitical significance. India is actively pursuing additional rare earth supplies from countries including Australia, Vietnam, Chile, and Peru, which collectively account for the remaining 10% of non-Chinese global supply.
The government's move signals a determined shift toward securing strategic independence in critical materials essential for both economic growth and national security. By developing domestic manufacturing capabilities, India aims to insulate its industries from external supply shocks and position itself as a manufacturing hub for advanced technological products.
