Rare earth push: Govt to float ₹7,280 crore magnet scheme RFP next month

Highlights

• ₹7,280 crore incentive scheme to boost domestic production of rare earth permanent magnets, with RFP expected in 3–4 weeks.
• Aim to build 6,000 MTPA capacity via global bidding, reducing heavy reliance on Chinese imports.
• Strategic push for self-reliance, but challenges remain in sourcing heavy rare earths, technology access, and cost competitiveness.

The scheme aims to build 6,000 tonnes per annum capacity through financial incentives and global bidding, reducing near-total dependence on imports.

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The Request for Proposal (RFP) for the ₹7,280 crore sales-linked scheme for manufacturing rare earth permanent magnets is expected to be released next month, according to a senior government official. This scheme will offer two sets of incentives to manufacturers who come forward to make the magnets in India: Sales-linked incentives of ₹6,450 crore for five years and also a capital subsidy of ₹750 crore for setting up an aggregate of 6,000 MTPA of magnet manufacturing facilities.“We will be issuing the RFP for ensuring rare earth permanent magnet production in the country within the next three-four weeks. The supply of raw material, which is rare earths, is already assured for OEMs which want to manufacture these magnets through the state owned Indian Rare Earth Ltd,” the official told ETAuto.He said that some companies in Japan and a few in India already have the necessary technology to manufacture rare earth permanent magnets even though 95 per cent of these magnets are still being produced in China.

“It will take about two years after bids are done for magnet production to start in India,” the official said without elaborating further. The sales-linked incentive scheme was earlier approved by the Union Cabinet and the target is to establish manufacturing facilities for 6,000 tonnes per annum.

REPMs are one of the strongest types of permanent magnets and are vital for electric vehicles, renewable energy, electronics, aerospace and defence applications. According to an official statement issued earlier, the ‘Scheme to Promote Manufacturing of Sintered Rare Earth Permanent Magnets’ will support the creation of integrated REPM manufacturing facilities, involving conversion of rare earth oxides to metals, metals to alloys, and alloys to finished REPMs.

Securing these minerals is a ‘non-negotiable strategic core’ for long-term resilienceChief Economic Advisor V Ananth Nageswaran

Driven by the rapidly growing demand from EVs, renewable energy, industrial applications, and consumer electronics, India’s consumption of REPMs is expected to double by 2030; as of now, almost the entire demand for REPMs is met through imports. The scheme envisions allocating the total capacity of 6,000 tonnes to five beneficiaries through a global competitive bidding process. Each beneficiary will be allotted up to 1,200 MTPA of capacity.The total duration of the scheme will be seven years from the date of award, including a two-year gestation period for setting up an integrated REPM manufacturing facility and five years for incentive disbursement on the sale of REPM.

Benefits and challenges

The scheme has the obvious benefit of ensuring uninterrupted supply of rare earth permanent magnets – a key component for the automobile industry – while also promoting indigenous manufacturing. But questions remain. One, experts have pointed out that while India has ample reserves of light rare earth metals, there is paucity of heavy rare earths and there may, thus, be some import dependence even after a local production and supply chain has been established. Two, for local sourcing at scale by Indian automobile and other OEMs, the magnets produced here will have to compete with Chinese imports on costs. Three, technology needed for manufacturing the magnets will have to be accessed and may involve joint ventures or technology transfer agreements with Japanese firms or companies in other geographies. In any case, indigenously made magnets will not be available at least till 2028.

A coordinated national framework can crowd in private investment, enable faster clearances and link mining with downstream applications such as EVs, electronics and defenceRajinsh Gupta,Partner, Tax and Economic Policy Group, EY India

Rare earth corridors

The government has taken several steps to counter the growing Chinese hegemony in rare earths. Besides launching a National Critical Mineral Mission with ₹16,300 crore outlay to galvanise production of minerals which are critical components for the automotive industry, the Union Budget 2026-27 has also announced a plan to create dedicated rare earth corridors and support states rich in these minerals. These corridors will assist Odisha, Kerala, Andhra Pradesh and Tamil Nadu in mining, processing, research and manufacturing of rare earths. These rare earth metals and critical minerals – lithium, cobalt, nickel and copper – have increasingly become tougher to secure for India in an increasingly hostile global world order.

In the latest Economic Survey, Chief Economic Advisor V Ananth Nageswaran had called them ‘strategic chokepoints’ while pointing out that for the structural transformation of India’s automotive and electronics industries, securing these minerals is a “non-negotiable strategic core” for long-term resilience. So, building domestic capacities for these metals and minerals is critical for India to avoid the trap of becoming a “client state” in a bifurcated technology landscape.

Speaking earlier, Rajinsh Gupta, Partner, Tax and Economic Policy Group, EY India, had said that India had significant resources of rare earths and the creation of corridors (as proposed in the Union Budget) “will bring them to production in a shorter time frame. A coordinated national framework can crowd in private investment, enable faster clearances and link mining with downstream applications such as EVs, electronics and defence. Such corridors can also reduce India’s import dependence over time and position the country as a trusted alternative supplier in global critical mineral value chains.”