Rare earth magnets: Govt offers incentives, reimbursement of investment in RFP to promote local production

Highlights

• Government offers up to ₹2,150/kg sales-linked incentives plus 15% capital subsidy to boost domestic manufacturing of NdFeB rare earth magnets.
• Scheme targets 6,000 tonnes annual capacity across five firms, requiring full value-chain setup and minimum 600 TPA production.
• India aims to cut 100% import dependence, but faces raw material shortages and limited midstream manufacturing capacity.

The government will incentivise an aggregate capacity of up to 6,000 tonnes per annum across five selected entities.

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The government has proposed sales-linked incentives of up to ₹2,150 per kg for rare earth permanent magnets (REPM) sold, to promote indigenous manufacturing of these magnets amid a chokehold on global supplies by China.

In the Request for Proposal (RFP) for incentivising indigenous manufacturing of Neodymium-Iron-Boron (NdFeB) REPMs, which was released this morning, an additional 15 per cent reimbursement of eligible investment by OEMs which come forward to make these magnets in India has also been proposed.

The RFP has been issued by the Ministry of Heavy Industries, for the ‘Scheme to Promote Manufacturing of Sintered Rare Earth Permanent Magnet’ notified last year.

India has moved to promote local manufacturing of REPMs since 100 per cent of the country’s sintered NdFeB REPM demand for downstream applications is currently being met through imports. This creates a high level of import dependency for essential sectors such as electric vehicles, renewable energy, defence and aerospace

What OEMs need to do

One of the requirements for availing incentives under the scheme is that the OEMs must establish facilities covering the full value chain – from NdPr oxide to sintered NdFeB REPM. Then, each manufacturer must establish a minimum capacity of 600 tonnes per annum and up to a maximum of 1,200 tonnes. The government will incentivise an aggregate capacity of up to 6,000 tonnes per annum across five selected entities.

Financial Incentive, eligibility

A sales-linked incentive is provided based on the quantity of sintered NdFeB REPM sold. The rate is capped at ₹2,150 per kg. OEMs are also eligible for a 15 per cent reimbursement of “eligible investment” made on or after April 1, 2025.

The total duration of the scheme is seven years, comprising a two-year gestation period for setting up manufacturing facilities and then five years for disbursement of the proposed incentives.

Bidders wishing to set up REPM facilities must have a minimum net worth of ₹180 crore to ₹375 crore, depending on the capacity installation plans; each bidder must provide ₹1 crore in security and then a performance guarantee of ₹20-40 crore if selected to participate in the scheme. As with many other government bids, lowest sales incentive rates will determine the winners during the bidding process. Beneficiaries must achieve three specific milestones to remain eligible for incentives: As per the RFP, successful bidders must achieve ₹150 crore of eligible investment within the first year, ₹300-600 crore in two years and begin commercial production within three years.

Raw material supply

The RFP says that OEMs will be responsible for their own raw materials and state-owned IREL (India) Limited will provide an assured limited quantity of just 500 tonnes per annum of NdPr oxide. That too to the L1, L2, and L3 ranked bidders. All other manufacturers must make their own independent arrangements for the entirety of their NdPr oxide requirements. There are myriad other challenges too in this ambitious plan to promote domestic manufacturing of REPMs.

One, while India possesses upstream capabilities in mining and refining rare-earth ores into oxides, there is a notable gap in industrial-scale midstream capabilities.

The RFP notes that we lack facilities required for alloy to magnet fabrication besides those needed for metal to alloy conversion. Also, procuring the NdPr oxide is a major problem since IREL can only provide a limited supply guarantee of just about 500 million tonnes per annum when the requirement could be four times this number. This will leave OEMs vulnerable to raw material supply risks, especially in the current volatile geopolitical situation.

Collaborations, consortia allowed

There are few, if any, existing industrial scale manufacturers of sintered NdFeB magnets in India. So, the RFP has allowed and proposed incentives for domestic entities to collaborate with foreign partners to acquire necessary technology.

Prospective bidders are permitted to apply after forming a consortium which can include foreign entities. But if a foreign entity is selected, it must mandatorily form an Indian Special Purpose Vehicle (SPV) to implement the project.

To encourage technology transfers from foreign entities to Indian partners, the “eligible investment” for the 15 per cent capital subsidy specifically includes expenditure related to Transfer of Technology (ToT) Agreements, such as the cost of technology and initial technology purchases.

One of the bid conditions mandates submission of a detailed project report by bidders which should include a technology roadmap. This roadmap must specify whether the technology will be developed indigenously or through technology collaboration with an Indian or foreign partner.