The Indian government has formally notified a significant ₹7,280-crore incentive package aimed at establishing a domestic manufacturing base for rare earth magnets. This strategic move, announced on 26 November and detailed in a notification from the Ministry of Heavy Industries on 15 December, is a direct response to China's recent export restrictions on these critical components.
Why Rare Earth Magnets Are Crucial for India
Rare earth magnets, specifically sintered neodymium-iron-boron (NdFeB) magnets, are the most powerful permanent magnets available commercially. Their exceptional strength-to-size ratio is indispensable for modern technology. They are vital in defence applications, electronics, renewable energy systems like wind turbines, and the automotive sector, particularly in electric vehicle (EV) traction motors.
Currently, China dominates the global landscape, accounting for roughly 60% of mining and a staggering 90% of processing capacity. India possesses upstream capabilities in mining and refining rare earth oxides but lacks industrial-scale midstream capacity to convert those oxides into finished magnets. This scheme aims to bridge that gap, targeting an annual production capacity of 6,000 tonnes of rare earth magnets within the country.
How the Incentive Scheme Will Work
The government plans to select five beneficiaries through a transparent bidding process to set up magnet manufacturing plants. Each applicant can bid for an annual capacity between 600 and 1,200 tonnes. The support comes in two key parts:
1. Capital Subsidy: A total of ₹750 crore is allocated to help set up the five plants. The subsidy amount is proportional to the allocated capacity, ranging from ₹75 crore for a 600-tonne plant to ₹150 crore for plants with 1,100-1,200 tonne capacity.
2. Sales-Linked Incentive (SLI): The remaining ₹6,530 crore is reserved for incentives based on actual sales. The incentive will be calculated as the kilograms of magnets sold multiplied by the price per kilo quoted by the bidder in their financial bid, with a cap of ₹2,150 per kilo. Furthermore, the total SLI for a company cannot exceed 40% of its net sales turnover from these magnets.
The plants must be commissioned within two years, and the sales-linked incentives will be available for five years post-commissioning. The government has also set maximum incentive caps based on capacity. For example, a plant with 600-tonne capacity is eligible for up to ₹640 crore in SLI, while a 1,200-tonne plant can access up to ₹1,290 crore.
The Pivotal Role of India Rare Earths Ltd (IREL)
State-run India Rare Earths Ltd (IREL) holds a unique position as the sole Indian company that mines rare earth ores and refines them into oxides. It will be a cornerstone of this scheme. IREL currently has an annual production capacity of about 400 tonnes of rare earth oxides, which can potentially yield around 1,200 tonnes of magnets. It also holds a stockpile of 500 tonnes of oxides.
Under the scheme, the three lowest bidders will receive an "assured limited supply" of rare earth oxide from IREL. The lowest bidder gets 200 tonnes, the second-lowest 167 tonnes, and the third-lowest 133 tonnes. This guaranteed supply is intended to de-risk the initial operations for selected manufacturers.
Requirements for Prospective Bidders
Bidders can be domestic companies, international groups, or consortia. Each must submit a detailed technical bid, including a project report, and a financial bid stating the incentive sought and the fixed selling price for magnets. A performance bank guarantee of ₹20-40 crore is mandatory, and beneficiaries must invest between ₹300-600 crore within two years, depending on their allocated capacity. Foreign rare earth oxide suppliers like Lynas, Iluka, and Rainbow have already shown interest.
The Bigger Picture: A Dual-Pronged Strategy
This incentive package represents a short-to-medium-term strategy to secure India's supply chains in strategic sectors amidst global disruptions caused by China's policies. However, the government is simultaneously encouraging research and development into technologies that could bypass the need for rare earth magnets altogether. This long-term vision aims to counter China's dominance and address the significant environmental impact of rare earth mining and processing.
Experts like Mrunali Tembhurne, Associate Fellow at TERI, note that while alternatives like ferrite motors are being explored, rare-earth-based products will remain critical for multiple sectors in the near to medium term. Thus, building domestic capacity now is a crucial step for India's technological and economic sovereignty.
