India's electric vehicle (EV) industry, along with other sectors, is facing a critical juncture due to its reliance on rare earth magnets, primarily sourced from China. Recent developments, including export restrictions imposed by China, have highlighted the vulnerability of India's supply chain and spurred a renewed focus on securing access to these essential materials.

Rare earth elements (REEs) are a group of 17 metallic elements crucial for various modern technologies, including EVs, wind turbines, defense systems, and consumer electronics. They are essential components in permanent magnets, which are used in electric motors, generators, and other critical applications. While India possesses the third-largest reserves of REEs in the world, its production remains limited, with a significant dependence on imports, particularly from China.

China dominates the global REE market, controlling a substantial portion of both mining and processing capacities. This dominance has enabled China to influence the supply and pricing of these critical minerals, giving it significant leverage over industries worldwide. The recent export restrictions imposed by China on certain REEs have exacerbated concerns about supply chain security and prompted countries like India to reassess their strategies.

The impact of these restrictions is already being felt in India, particularly in the automotive sector. A recent report by CareEdge, a rating agency, cautioned that inventories of rare earth magnets may dwindle by mid-July 2025 for specific automotive applications due to export restrictions and shipment delays from China. This shortage threatens the production of EVs, high-end internal combustion engine (ICE) vehicles, and hybrid vehicles, potentially disrupting the growth momentum of the domestic automobile industry. The restrictions affect elements commonly used in high-performance magnets critical to electric, internal combustion engine, and hybrid vehicle production. The Chinese government introduced export licensing requirements on April 4, 2025, for neodymium, dysprosium, terbium, samarium, gadolinium, praseodymium, and cerium.

In response to these challenges, India is taking several steps to secure its access to REEs and reduce its dependence on China. These include:

• Enhancing Domestic Production: The Indian government is promoting the development of domestic mining and processing capabilities through initiatives like the National Critical Minerals Mission. This mission aims to encourage private sector involvement, invest in research and development, and streamline regulatory processes to accelerate the extraction and processing of REEs within the country. IREL (India) Ltd has been mandated to produce REEs in the form of high pure rare earth oxides from rare earths bearing mineral Monazite in India.
• Diversifying Supply Sources: India is actively exploring opportunities to diversify its REE supply chains by engaging with other countries that possess significant reserves. Negotiations are underway with nations in Central Asia, including Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan, to jointly explore and develop rare earth minerals. India is also exploring alternative suppliers in Japan in Vietnam in Indonesia and the United States of America and even Russia.
• Promoting Recycling: Recognizing the importance of resource efficiency, India is also focusing on promoting the recycling of rare earth magnets and other REE-containing products. This can help reduce the demand for newly mined materials and create a more circular economy for these critical resources.
• Incentive Schemes: An incentive scheme to promote manufacturing of rare earth magnets has also been under discussion. The scheme with an outlay running into nearly ₹3,000 crore has a 7-year to 10-year period, which could see nearly 4,000 MT of magnet-making being pushed through a series of production and sale linked incentives.

While these efforts are promising, challenges remain. Scaling up domestic production, securing access to diverse supply sources, and developing efficient recycling technologies will require sustained investment, technological innovation, and strategic partnerships. Moreover, India needs to address environmental and health concerns associated with REE mining and processing, particularly the presence of thorium in monazite sands, the primary source of REEs in India.

The current situation serves as a wake-up call for India to prioritize the development of a secure and sustainable rare earth ecosystem. By taking proactive steps to enhance domestic production, diversify supply sources, and promote recycling, India can mitigate its vulnerability to supply disruptions and ensure the availability of these critical minerals for its growing economy and technological ambitions.