Recent policy measures for rare earth elements in India underline a strategic government shift toward building a robust domestic rare earth value chain to support high technology and manufacturing industries. These efforts reflect growing global tensions, China’s tightening control over rare earth exports and India’s urgent need to build domestic capacity for critical minerals.

The country’s push to scale rare earth elements production carries significant implications for its fast‑growing automotive sector, particularly as the industry shifts toward electric mobility.

India strengthens its rare earth value chain to support high technology and manufacturing

In its Union Budget 2026–2027, the Indian government introduced dedicated rare earth elements (REEs) corridors in four states—Andhra Pradesh, Kerala, Odisha and Tamil Nadu—to develop mining, processing, research and manufacturing of rare earth elements.

The corridors complement the operations of IREL (India) Limited, a Department of Atomic Energy enterprise that has processed roughly 1 million metric tons of strategic minerals annually since 1963 and operates a rare earth elements extraction plant in Odisha and a refining unit in Aluva, Kerala. Linking IREL’s facilities with the new corridors is aimed at increasing domestic rare earth elements production, fostering advanced manufacturing and supporting broader self-reliance and clean energy objectives. 

Government incentives target rare earth elements industry

Scheme to Promote Manufacturing of Sintered Rare Earth Permanent Magnet: Approved in December 2025 with a financial outlay of 72.8 billion Indian rupees, this scheme aims to establish 6,000 metric tons per annum of integrated rare earth permanent magnet manufacturing capacity, covering the full rare earth value chain from rare earth oxides to finished magnets. The scheme is intended to build domestic capability for a critical input used in electric vehicles, renewable energy systems, electronics, aerospace and defense while improving supply chain resilience and supporting national goals such as Atmanirbhar Bharat and the Net Zero 2070 vision.  

The scheme establishes an end-to-end framework for rare earth permanent magnet (REPM) manufacturing in India, targeting a total domestic capacity of 6,000 metric tons per year across the full rare earth value chain from oxide feedstock to finished magnets. Up to five beneficiaries will be selected through global competitive bidding, each allowed a maximum of 1,200 metric tons per year to ensure diversification and scale.

Financial support includes a 64.5 billion rupees sales-linked incentive over five years and a 7.5 billion rupees capital subsidy for advanced rare earth processing technology. Implemented over seven years, the program provides a two-year gestation period for plant setup followed by five years of incentive disbursement tied to REPM sales to secure capacity creation and market stability. 

National Critical Mineral Mission: Along similar lines, in January 2025, the Indian government approved the launch of the National Critical Mineral Mission with an expenditure of 163 billion rupees and an expected 180 billion rupees investment by public sector undertakings and other entities.

The mission targets the entire critical mineral value chain, including exploration, mining, beneficiation, processing, recycling and recovery from end-of-life products and supports faster regulatory approvals, financial incentives and domestic stockpiling. It also includes measures to expand domestic and offshore exploration, enable overseas acquisition of mineral assets, develop mineral processing parks and support research through Centres of Excellence.

Complementary measures include amendments to the Mines and Minerals (Development and Regulation) Act, 1957; auction of strategic mineral blocks; ongoing and planned exploration by the Geological Survey of India; removal of customs duties on most critical minerals; support for innovation under the Science and Technology – Promotion of Research and Innovation in Start-ups and Micro, Small and Medium Enterprises program; and overseas lithium exploration by Khanij Bidesh India Limited. 

Also, according to an Aug. 1, 2025, Ministry of Heavy Industries press release, 11 projects related to rare earth elements were approved in 2023–2024 and 2024–2025, with a combined financial outlay of 93.3 million rupees, underscoring efforts to expand the domestic rare earth elements industry. All of these incentives are designed to accelerate development of a domestic rare earth value chain.

Indian rare earth mining and resource exploration expand across key regions

Recent policy initiatives aim to align the rare earth industry with national goals by reducing import dependence—particularly on mainland China—supporting clean energy technologies like electric vehicles and wind power and expanding India’s rare earth mining capacity. China's dominance in rare earth elements and critical minerals, along with its export restrictions, has disrupted global supply chains, especially in the automotive sector, highlighting the risks of concentrated supply sources.

Although India possesses substantial rare earth resources, its domestic production of permanent magnets is still developing, with most imports coming from China, accounting for 60%–80% by value and 85%–90% by volume from 2022 to 2025. 

The Atomic Minerals Directorate for Exploration and Research (AMD) under the Department of Atomic Energy is expanding rare earth element resources in placer sand deposits and hard rock terrains across India. As of July 23, 2025, AMD has estimated 7.23 Mt of rare earth oxide (REO) contained in 13.15 Mt of monazite deposits located in coastal, inland and alluvial areas of Andhra Pradesh, Gujarat, Jharkhand, Kerala, Maharashtra, Odisha, Tamil Nadu and West Bengal, along with 1.29 Mt of REO in hard rock deposits in Gujarat and Rajasthan. Additionally, the Geological Survey of India has augmented 482.6 Mt of rare earth element ore resources through 34 exploration projects. 

Data compiled Feb. 5, 2026.

Sources: Press release by Ministry of Heavy Industries dated August 1, 2025; Directorate General of Commercial Intelligence and Statistics.

© 2026 S&P Global.

Rare earth processing technology and India’s automotive sector

According to S&P Global Mobility, battery electric vehicles made up about 4.1% of India’s passenger vehicle production in 2025 and are projected to increase to 17.3% by 2031, while hybrid passenger vehicles represent roughly 10% of the market and are expected to grow to approximately 36.5%. Consequently, India’s e-motor demand is projected to rise at a compound annual growth rate of 36% over the period. Throughout the forecast horizon, rare earth element-dependent e-motors are expected to account for most of the e-motor demand, reinforcing the need for a secure and reliable rare earth value chain. 

As of Feb. 6, 2026.

Source: S&P Global Mobility.

© 2026 S&P Global.

Outlook for scaling India’s rare earth value chain

The recent policy announcements and initiatives are positive steps toward strengthening India’s critical minerals and rare earth value chain, reducing import dependence, and bolstering India’s rare earth industry. However, reserves alone are insufficient. Building the full rare earth value chain—from mining and processing to refining and manufacturing rare earth permanent magnets—requires significant investment, technical capability and time. 

Kartik Ganesh, principal research analyst, S&P Global Mobility, says, “The government’s push—from rare earth corridors to incentives for local magnet manufacturing—is a welcome step toward localization and supply chain self-reliance. But for automakers, ‘secure supply’ ultimately means automotive-grade, dual-sourced magnets with consistent specs and predictable lead times, and that kind of qualification and process stabilization will take years before the ecosystem can scale to full production.”

The long-term effectiveness of these measures remains to be seen, even as some automakers and startups pursue alternative motor technologies that may reduce reliance on rare earth elements.

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This article was published by S&P Global Mobility and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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