In order to get rid of its dependence on China's rare earth supply chain, the Indian government has invested 72.8 billion rupees (approximately 5.15 billion yuan) to support its own rare earth permanent magnet industry. The plan is to build 5 'full-chain' magnet factories with an annual production capacity of 1200 tons each.
However, according to a report by Nikkei Asia on August 10th, bidding companies are complaining—the production capacity is too small, equipment delivery is slow, and there is no source for raw materials. Once the five-year subsidies end, many of these companies may simply not be able to survive.
In November last year, a cabinet meeting chaired by Indian Prime Minister Narendra Modi officially approved the “Sintering Rare Earth Permanent Magnets Manufacturing Promotion Program”. The program aims to establish an integrated manufacturing capacity for rare earth permanent magnets with an annual production of 6,000 metric tons. It covers the entire value chain, from rare earth oxides to finished magnets. Up to five beneficiary companies will be selected, with each having a maximum annual production capacity of 1,200 tons. The subsidies are divided into two parts: a capital subsidy of 7.5 billion rupees for the construction of manufacturing facilities, and a five-year sales-linked incentive of 64.5 billion rupees.
The introduction of this plan is directly due to China's implementation of export licensing regulations for medium and heavy rare earth elements in April 2025. However, the application deadline has been extended three times. The most recent extension was on August 14, and signs of insufficient preparation from companies are already appearing.
More importantly, senior executives of companies that have bid or intend to bid expressed widespread concerns: the Indian government tends to support smaller factories that cover the entire industrial chain and have a time limit for subsidies. Can such policies foster enterprises that can compete head-to-head with global competitors?
"China adopts a division of labor production system," said Tarun Singh, director of Lohum company in India, to Japanese media. The company has become the first magnetic manufacturing enterprise in India under an electronics component plan. "In India, we require magnetic manufacturers to start with rare earth oxides and continue till the final production of magnets. Therefore, we cannot enjoy China's scale economic advantages."
Singel further gave an example: “I have visited a Chinese factory that produces 40,000 tons of magnetic powder annually, while our planned production capacity is only 6,000 tons.” In 2021, China integrated six major state-owned rare earth companies into the China Rare Earth Group, gaining full control over the entire chain from ore to metal, and thus having substantial influence over global supply and pricing. In contrast, India’s ‘small but comprehensive’ model is considered incapable of forming competitiveness.
Raw materials are not guaranteed. Although India has the third largest reserves of rare earths in the world, it lacks the refining capacity to turn these elements into oxides. Currently, the state-owned company Indian Rare Earths Limited is the only manufacturer with commercial-scale production capabilities for oxides. However, its promised annual production capacity is only 500 tons, which is far below the required total of about 1,500 to 1,700 tons for the five selected companies. Companies must purchase raw materials from countries such as Myanmar, Vietnam, and Laos. Belgian rare earth expert Nabil Mancheri points out that even if India reaches an agreement with Myanmar regarding rare earth exports, without Chinese technical support, it will still take time to expand production capacity to meet international demands.
Equipment delivery is slow. Multiple countries are trying to reduce their reliance on the Chinese supply chain, leading to a surge in rare earth projects. However, the number of equipment suppliers is limited. Japan’s ULVAC accounts for more than 70% of the market share in vacuum sintering furnaces and vacuum melting furnaces. N.A.N. MagneTech mainly purchases equipment from Japan, with an expected delivery time of about 15 months. Lohum also purchases ULVAC equipment, but it comes from its Chinese factories, with a delivery period of only 6 to 7 months. Siegel indicates that considering China’s cost advantages, the cost of purchasing equipment from Japan could be up to twice as much.
The capital threshold is high. The plan requires companies to have a net asset value of 1.8 billion to 3.75 billion rupees, which effectively excludes many small businesses with core technologies. Mecwin Technologies, a machinery manufacturer, co-founder Shivam Kumar has spent the past nine years traveling frequently to China to develop magnetic material manufacturing technology suitable for Indian conditions. After Chinese export controls were implemented, he reached an agreement with the Fraunhofer Institute in Germany to jointly develop the entire value chain. However, the high net asset value threshold prevented him from receiving subsidies. “I don’t have that much net assets,” said Kumar. “Where can I get that money?”
N.A.N. MagneTech Vice President Gorlaf Shukla told Nikkei Asia that the company hopes to eventually increase its production capacity from the currently planned 1200 tons to 10,000 tons. The current scale is 'simply not enough to compete'. He pointed out that this requires a long-term stable source of oxides and sustainable profitability, especially after subsidies end. However, both of these factors are currently unpredictable.
Once the magnetron is actually put into production, Indian component and electrical manufacturers will be ready customers, even if the initial prices are higher than those of Chinese suppliers. But the question is, will these “small but comprehensive” companies be able to survive after the five-year sales-linked incentives end?
According to Abhijit Kurkarni, a partner at Ernst & Young-Booz Hong, India has contributed less than 1% of the global production of rare earths so far. The lack of technology for mining and processing rare earths, as well as outdated infrastructure, are significant challenges faced by India.
"China has repeatedly showcased its muscle, Singh asserted. India's recent massive investment, while demonstrating strategic determination, is widely believed to only be a small starting point if it fails to make flexible adjustments on scale, supporting infrastructure and capital thresholds, as the 72.8 billion rupees investment might only secure "a modest beginning" rather than genuine industrial chain safety."
