India is in talks with companies to establish long-term stockpiles of rare earth magnets and is drafting fiscal incentives to promote domestic production, in a bid to reduce its reliance on Chinese imports, sources familiar with the discussions told Reuters.
The move comes in response to China’s April 4 decision to tighten export controls on rare earth materials, a development that has rattled global industries, especially automotive and clean energy sectors. China currently accounts for about 90% of global rare earth magnet processing.
Prime Minister Narendra Modi’s government is exploring production-linked incentives and price-gap subsidies to attract investment, two sources said, declining to be named due to the sensitivity of the ongoing talks. The scheme under consideration would cover part of the cost difference between domestically produced magnets and cheaper Chinese imports to support cost parity and stimulate demand.
“The government is looking into it critically. They are serious,” said one of the sources. However, funding allocations are yet to be finalized, and a meeting with industry representatives is expected next week, the person added.
India’s state-owned IREL has long mined rare earths, but its output has largely served the atomic energy and defense sectors. Most commercial requirements continue to be met through imports, mainly from China.
The pressure on India’s auto sector has intensified following production suspensions abroad. In Japan, Suzuki Motor halted output of its Swift model due to Chinese export curbs. In India, industry body SIAM privately warned the government that local vehicle production could “come to a grinding halt” as early as late May or June.
“The short-term solution has to be to get Chinese authorities to clear things,” said one auto executive, adding that a sudden supply chain shift was not feasible. Another industry source said some automakers and suppliers may manage until the end of June, but beyond that, “the situation will turn really scary,” affecting not only electric vehicles but also traditional models.
Despite holding the world’s third-largest rare earth reserves—estimated at 6.9 million tonnes by the U.S. Geological Survey—India exploits only a small portion due to limited private sector investment.
In April, the government launched the National Critical Mineral Mission to enhance domestic self-reliance and has begun exploring deposits of neodymium, a key component in magnets used for electric motors. However, India currently lacks processing infrastructure and continues to export neodymium to countries like Japan.
Export data showed India shipped nearly $7 million worth of neodymium to Toyota Tsusho between January and April this year.
This week, officials in the Prime Minister’s Office reviewed the potential impact of the magnet shortage on the nascent EV sector, which has attracted multi-billion-dollar investments. The government is also weighing tariff exemptions on machines required for domestic magnet manufacturing, according to a source.
Source: Reuters