Whalesbook
Building Domestic Capacity
The Indian government has extended the deadline for its ₹7,280-crore incentive scheme to June 29. The plan aims to establish 6,000 metric tonnes per annum (MTPA) of domestic sintered rare earth permanent magnet (REPM) manufacturing capacity. This move is a significant effort to reduce reliance on imports for key clean-energy and mobility components. The extension, granted after requests from stakeholders, comes as global supply chains face scrutiny and India accelerates its drive for self-sufficiency.
Why Rare Earth Magnets Matter
Rare earth permanent magnets, especially those made with neodymium-praseodymium (NdPr), are essential for the efficient motors in electric vehicles (EVs) and the generators in wind turbines. Demand for these magnets is expected to grow sharply over the next decade, fueled by global efforts to electrify transportation and expand renewable energy. India's scheme seeks to create a complete manufacturing chain, from processing rare earth oxides to producing finished magnets. This addresses a major gap in the country's industrial capacity and supports its clean energy transition.
China's Dominant Position
China holds a dominant position in the global rare earth permanent magnet market. By 2024, China handled about 91% of global separation and refining, and around 94% of sintered permanent magnet manufacturing. China also possesses vast reserves, estimated at 44 million tonnes, and a comprehensive system for processing, alloying, and manufacturing these magnets. The country's strategy, including its "Made in China 2025" initiative, has prioritized vertical integration and control over the entire supply chain.
India's Manufacturing Gap
India has significant rare earth reserves, estimated at 13.07 million tonnes in monazite sands, with the Geological Survey of India identifying an additional 482.6 million tonnes of ore resources. Despite these reserves, India's domestic magnet production is limited. From 2022 to 2025, imports, mainly from China, supplied 85-90% of the country's demand. Challenges in processing infrastructure, technology, and regulations have historically hampered India's competitiveness.
Global Diversification Efforts
Geopolitical tensions and China's past use of export controls on critical minerals have spurred global efforts to diversify supply chains. Countries including the United States and European Union members are working to reduce their reliance on single sources. While Japan and the U.S. have some magnet production, they still depend heavily on China for raw materials and processing.
India's Incentive Schemes: A Look Back
India's broader manufacturing initiatives, such as the Production Linked Incentive (PLI) schemes, have had mixed results. While sectors like electronics and pharmaceuticals have seen substantial growth and investment, driven by import substitution and export promotion, others have faced issues such as delayed subsidy payments and missed targets. The success of PLI schemes often depends on the specific sector.
Key Challenges Ahead
A major obstacle for India's ambitions is China's deeply established and vertically integrated rare earth magnet industry. Replicating China's extensive network, which covers separation, alloying, manufacturing, and recycling built over decades, is a massive challenge. China's control over refining and processing gives it significant influence over global supply chains.
Despite its mineral wealth, India lacks advanced downstream processing and magnet manufacturing technology. Building such a sophisticated industrial base needs significant capital, specialized expertise, and integrated supply chain capabilities, which are still developing. Past PLI schemes have faced issues with subsidy payments and sector underperformance, raising questions about the efficient execution of large industrial projects.
While reducing import dependence is a sound strategy, the global rare earth market is prone to geopolitical shifts and price fluctuations. China's ability to affect supply through export controls or policy changes poses a risk, even as it encourages diversification. For new companies, managing the cost of rare earth oxides and setting competitive prices against state-backed competitors will be a significant challenge.
Path Forward for India
Localizing rare earth magnet manufacturing is seen as crucial for India's automotive and defense sectors, among others. The government's commitment is demonstrated by initiatives like KABIL (Khanij Bidesh India Limited) for mineral security and the establishment of dedicated rare earth element (REE) corridors in key states. These actions align with national goals for self-reliance and clean energy, aiming to position India to capture a larger share of the global clean-tech manufacturing market, if execution challenges are overcome.