India is taking a decisive step to reduce its heavy reliance on Chinese rare earth magnets by preparing a new incentive scheme that will boost domestic production of these critical components, Union Heavy Industries and Steel Minister HD Kumaraswamy announced on Friday.

Speaking in a video address at the annual convention of the Automotive Component Manufacturers Association (ACMA), the minister outlined that the proposed framework will extend targeted fiscal incentives to encourage manufacturers to set up large-scale facilities for rare earth magnet production in the country.

These magnets—particularly neodymium-iron-boron (NdFeB)—are indispensable for high-performance electric motors, advanced automotive systems, and renewable energy technologies, yet over 90 percent of global supply is currently dominated by China.

Kumaraswamy highlighted that the new scheme will be structured to support both capital expenditure (CapEx) and operational expenditure (OpEx), areas where the cost burden often deters private sector investment in critical raw material industries.

By bridging profitability gaps and offering financial cushioning against high import tariffs on specialized equipment, the plan aims to create a conducive domestic value chain for rare earth magnet manufacturing.

According to ministry officials, the framework will also include tariff relief on essential processing equipment, thereby narrowing the cost differential between Indian and Chinese manufacturers and making India competitive in global markets. The broader strategic goal is to position India as a secure player in global value chains, resistant to supply shocks from rising geopolitical restrictions and trade curbs.

In parallel to the fiscal incentive plan, the government is in advanced discussions on a dedicated ₹1,345-crore program to establish rare earth magnet production capacity within India.

The scheme envisions supporting at least two manufacturers to develop end-to-end facilities capable of converting rare earth oxides into industrial-grade magnets for EV motors, automotive subsystems, and industrial machinery.

Currently, Indian Rare Earths Ltd—operating under the Department of Atomic Energy—remains the sole custodian of rare earth resources in the country. However, it has limited capacity and does not maintain large-scale downstream magnet fabrication infrastructure, prompting the need for private-sector participation.

The urgency of localizing rare earth magnet production has been heightened by China's recent restrictions on metal exports, which have already triggered disruptions in the global supply chains for automotive and semiconductor industries. For India, where the electric vehicle (EV) sector is poised for rapid growth, securing a stable domestic supply of magnets is critical.

EV traction motors alone constitute one of the biggest demand segments for NdFeB magnets, while additional applications span across electronic power steering units, wind turbine generators, consumer electronics, aerospace systems, and defence technologies.

At present, Indian original equipment manufacturers (OEMs) are dependent on imported magnets, primarily sourced from China via intermediaries. This reliance creates strategic vulnerabilities not only for automotive players but also for strategic defence supply lines.

By planning this incentive-driven magnet production ecosystem, the government expects several downstream benefits: the creation of localized supply chains to support India’s EV ambitions, development of advanced materials expertise within domestic industries, and reduction in foreign exchange outflow through imports.

Moreover, successful establishment of processing facilities could allow India to eventually leverage its known reserves of rare earth elements, such as monazite sands rich in neodymium, praseodymium, and dysprosium, which are vital for high-grade magnets.

Over the medium term, such initiatives could also open avenues for India to export rare earth magnets and emerge as a strategic alternative supplier for global industries seeking to diversify beyond China.

Kumaraswamy’s announcement underscores India’s multi-pronged strategy of addressing critical raw material security while simultaneously boosting industrial self-reliance as part of the broader “Atmanirbhar Bharat” mission.

If executed effectively, the program will not only strengthen the resilience of India’s EV and automotive manufacturing sectors but also mark a significant step towards building a high-tech materials industry that supports both economic and strategic objectives.

Based On ET News Report