India Rare Earth Magnet Incentives 2025: Boosting Domestic Production Amid Supply Concerns

India is actively engaging with companies to introduce financial incentives aimed at encouraging local production of rare earth magnets, Reuters reports. The government’s goal is to gradually build a domestic reserve and reduce heavy reliance on imports from China.

Establishing a reliable supply chain for rare earth magnets is expected to take several years, but it is viewed as a crucial step to lessen India’s dependence on China—especially after China imposed export restrictions on rare earth materials on April 4. These magnets are essential components used in electric vehicles, renewable energy solutions, and defense technologies.

Currently, China dominates the market, processing approximately 90% of the global supply of rare earth magnets. In response, Prime Minister Narendra Modi’s administration is actively working to increase India’s manufacturing capacity. The government is considering production-linked incentives (PLI) to support manufacturers in this sector.

According to sources cited by Reuters, the Ministry of Heavy Industries is drafting a plan that would subsidize part of the price difference between domestically produced magnets and cheaper Chinese imports. This subsidy aims to make Indian-made magnets more competitive and promote their usage within the country. However, specifics on funding are still being finalized. Officials plan to meet with industry leaders next week to discuss the details.

So far, the Ministry of Heavy Industries has not issued an official statement regarding the initiative.

Domestic Production Falls Short of Demand

Although India’s state-owned Indian Rare Earths Limited (IREL) has been mining rare earth elements for years, the majority of its output serves the defense and atomic energy sectors. For other industries, including automotive, supply still largely depends on imports from China.

Global automakers have voiced concerns over potential disruptions in the supply chain. For example, Suzuki Motor in Japan had to halt production of its Swift model due to a shortage of rare earth magnets. Meanwhile, the Society of Indian Automobile Manufacturers (SIAM) has reportedly warned the government that India’s auto industry may face a complete production stoppage as soon as late May or early June.

In the short term, the government plans to send a delegation of auto industry representatives to China to request expedited export clearances. “A radical shift in the supply chain is not feasible immediately,” a concerned executive told Reuters, highlighting the urgent need to resolve the bottleneck.

Untapped Reserves Despite High Global Potential

India holds the world’s third-largest reserves of rare earth elements—estimated at 6.9 million tonnes, according to the US Geological Survey. However, private sector investment in mining and processing remains limited.

Earlier this year, India launched the National Critical Mineral Mission to enhance self-reliance in this sector. Exploration for neodymium—a critical rare earth used in magnets for electric vehicles—has commenced. Despite this, India lacks sufficient processing facilities and currently exports some neodymium to Japan. From January to April 2025, nearly $7 million worth of neodymium was shipped to Toyota Tsusho, a Japanese trading company.

An insider familiar with government discussions revealed that the Prime Minister’s Office has reviewed the potential impact of rare earth shortages on India’s growing electric vehicle industry, which has attracted substantial investments.

The official added that the government is considering tariff exemptions on machinery required by local manufacturers of rare earth magnets. “The government is taking this very seriously,” the source said.

What Are Rare Earth Elements?

Rare earths are a group of 17 chemical elements found in the Earth’s crust. This group includes 15 lanthanides along with scandium and yttrium. Despite their name, these elements are not actually rare but are difficult and expensive to extract and separate, often requiring over 100 processing steps.

These elements play a vital role in modern technology, being used in electric car motors, wind turbines, smartphones, computers, and medical devices such as MRI machines.

China currently mines about 70% of the world’s rare earth elements and controls roughly 90% of the global processing. Other major producers include the United States, Australia, and Myanmar, with China also processing much of their output.