Rare earth reality check: Fixing India’s EV supply chain blindspot

The launch of the Rs7,280-crore scheme for the manufacture of sintered rare earth permanent magnets (REPMs) is a bid to fill a major and costly policy lapse, to fix the gap in the supply chains of electric vehicles (EVs) and other sectors.

Animated by the enthusiasm to look green and the impulse to indulge in virtue-signaling, many years ago, our policy and decision makers have embarked on the uncharted waters of EVs, renewable energy, electronics, etc. They were so bewitched by the charms of fads like EVs that it never occurred to them that the production of anything is predicated upon the resilience of the supply chains involved.

It was only a few months ago, when China weaponised rare earth magnets, that our policy makers realised that India’s EV, renewable energy, and electronics sectors have a problem. And when Beijing offered relaxation in August, our businesspersons heaved a collective sigh of relief. It is, however, indisputable that our dependence on REPMs on China, an unfriendly nation, will continue for a long time.

It is important to note here that India imported 53,748 metric tons of rare earth magnets in the last fiscal. “Right now, all permanent magnets used in the country are imported from somewhere. With the completion of this programme and the establishment of new plants, our import dependence will practically reduce to zero,” Information Minister Ashwini Vaishnaw told the media after the Cabinet decision was made on the scheme.

The Rs7,280-crore outlay of the scheme has two components: there will be sales-linked incentives of Rs6,450 crore for five years; these will accompany a capital subsidy of Rs750 crore to set up a total of 6,000 tonnes of sintered REPM manufacturing facilities. The sintering process is an important thermochemical process in the blast furnace iron-making system, says ScienceDirect.

As per the scheme, the 6,000-tonne allocation capacity will be equally divided into five beneficiaries who will be selected through a global competitive bidding process. The seven-year scheme, whose duration will start from the date of award, will include a two-year gestation period for setting up an integrated REPM manufacturing facility, and five years for incentive disbursement on the sale of REPMs.

The government is too late in initiating action for the domestic production of REPMs. Even when it did realize the importance of REPMs, it waited for more than two years. In 2023, the Ministry of Coal & Mines had already identified 30 such minerals as vital to India’s economic development and national security. The intention was to reduce external dependency, strengthen supply chains, and move towards greater “self-reliance.”

This recognition itself reflected an understanding that minerals like rare earths, lithium, and cobalt would play a decisive role in shaping the technologies of the future—from renewable energy systems to advanced electronics and defence equipment.

Yet awareness did not translate into urgent action. The pace of policy articulation and project execution to secure these minerals—either through domestic exploration or international partnerships—remained slow. The result was a real and growing vulnerability in sectors that the government was simultaneously championing, especially EVs.

The enthusiastic policy push for EVs, backed by subsidies and ambitious targets, progressed without a parallel industrial strategy to secure the components essential to EV manufacturing. Hopefully, policy makers will learn from their mistakes and become proactive.