India is set to nearly triple its incentive program for rare earth magnet manufacturing to more than ₹7,000 crore ($788 million), as the government accelerates efforts to build domestic capacity in a sector long dominated by China. The proposal, which is awaiting Cabinet approval, marks a significant expansion from an earlier $290 million plan designed to secure critical materials for the nation’s electric vehicle, renewable energy, and defence industries, according to people familiar with the matter.
A strategic push to reduce China reliance
The move positions India alongside other major economies seeking to diversify supply chains amid growing concerns over China’s control of rare earth processing, which currently accounts for about 90% of global output. In April, China tightened export controls on rare earths as part of its ongoing trade tensions with the United States, disrupting global supply chains for automakers and tech manufacturers.
Earlier this year, Prime Minister Narendra Modi had cautioned that critical minerals should not be “weaponized,” urging for stable and diversified global supply chains. India’s rare earth expansion plan aligns with this broader vision of self-reliance in strategic sectors.
Government plan and industry challenges
Under the proposal, the government aims to support around five companies through a combination of production-linked incentives (PLIs) and capital subsidies. These firms will focus on developing magnet manufacturing capabilities to meet domestic demand and support industries such as EVs, wind turbines, and defence equipment.
However, officials and experts warn that the plan faces challenges — including limited domestic expertise, high initial investment costs, and long gestation periods. The technological know-how for rare earth processing remains concentrated in China, making India dependent on international collaboration for now.
State-owned enterprises are expected to lead early-stage investments and overseas mining partnerships, as domestic production is still unviable without subsidies.
Environmental and economic considerations
Mining and processing rare earths economically poses not only financial hurdles but also environmental challenges, as the minerals are often associated with radioactive elements. Developing a sustainable model will require significant research and regulatory oversight.
Additionally, China’s recent relaxation of export curbs for the United States and European Union could affect India’s plans. If extended to Indian firms, it may lead to cheaper Chinese imports, potentially deterring long-term investment in India’s nascent magnet sector.
Exploring alternative technologies
To mitigate risks associated with rare earth dependency, the government is also funding studies on synchronous reluctance motors — a technology that could eliminate the need for rare earth magnets in electric motors.
Meanwhile, several global suppliers have shown interest in providing rare earth materials to India. The country’s projected annual demand of about 2,000 tonnes of rare earth oxides can be easily met by international producers, according to sources.
Attracting global players
The government hopes the expanded incentive package will attract global magnet manufacturers to set up subsidiaries or joint ventures in India, thereby reducing its reliance on China. The program could also pave the way for a broader rare earth ecosystem, spanning exploration, processing, and high-tech component manufacturing.
However, industry watchers caution that success will depend on the government’s ability to balance incentives, technology partnerships, and environmental safeguards while ensuring that the sector remains globally competitive