India faces a critical challenge as China continues to restrict exports of rare earth (RE) magnets. Despite recent diplomatic easing, Indian automakers struggle to secure these vital materials. This has forced them to import fully assembled motor parts from China and Vietnam. The situation threatens to raise vehicle costs and reduce domestic manufacturing value addition. After the Shanghai Cooperation Organisation summit in 2025, hopes were high for improved rare earth mineral supplies from China. However, export approvals remain slow and complicated. Indian companies face bureaucratic hurdles as China demands approvals through India’s Ministry of External Affairs with strict end-use certifications. This delays shipments and creates supply uncertainty.
Impact on Indian Automobile Industry
Indian automakers cannot source rare earth magnets directly. Instead, they import complete components, which are costlier and reduce local manufacturing. This affects eligibility for India’s Production Linked Incentive (PLI) scheme that requires at least 50% domestic value addition. Reduced value addition could mean losing crucial financial incentives.
Government Initiatives
The Government of India has launched a Rs 16,300 crore critical minerals mission. It aims to explore over 1,200 sites for rare earth and other minerals. Additionally, a Rs 1,500 crore scheme promotes recycling of battery waste and e-waste to extract key minerals. These steps seek to reduce import dependence over the next 3-4 years.
Industry Adaptations
Automakers are modifying vehicle designs to reduce rare earth usage. For example, Royal Enfield has altered its gear position sensors due to magnet shortages. Some carmakers have removed gear position indicators in automatic models to prioritise magnets for essential functions like transmissions and sensors. These are temporary measures to manage limited supplies.
China’s Strategic Control
China has not banned exports outright but has made the process difficult and slow. Applications from Indian subsidiaries are often rejected, while approvals go to foreign headquarters. This selective process increases sourcing timelines and risks shortages. China’s broader strategy includes securing mineral reserves globally, notably in Africa, which holds 30% of the world’s minerals.
India’s Mineral Import Dependence
India is nearly 100% import-dependent for 13 critical minerals by 2030. These include lithium, chromium, rare earth elements, and others vital for manufacturing. China’s dominant role in the supply chain poses a strategic risk. India’s efforts to build domestic capacity and recycling infrastructure aim to mitigate this vulnerability.
Broader Economic Implications
Rising costs of imported components may increase vehicle prices in India. Reduced local value addition could affect the competitiveness of Indian automakers. Prolonged supply uncertainty may slow the growth of electric vehicles, which rely heavily on rare earth magnets. Strengthening domestic supply chains is essential for India’s industrial future.
Questions for UPSC:
- Point out the strategic importance of rare earth minerals in global manufacturing and analyse India’s challenges in securing these resources.
- Critically analyse the impact of China’s mineral export policies on India’s automobile and electric vehicle industries with suitable examples.
- Estimate the role of government initiatives like the Production Linked Incentive (PLI) scheme and recycling missions in reducing India’s import dependence on critical minerals.
- Underline the significance of Africa in global mineral supply chains and discuss how China’s investments there affect India’s resource security.
