Mint Explainer: How does the ₹7,280-crore incentive package for rare earth magnets work?

Subscribe to enjoy similar stories. About six months after China first began restricting the export of specific rare earth magnets, rattling manufacturers around the world, India announced a ₹7,280-crore incentive package on 26 November to set up five plants to produce rare earth magnets in the country.

With the scheme notified this week, it’s clear what the government is trying to do—create a midstream industry that uses refined rare earth oxides to make magnets for sectors such as defence, electronics, renewable energy, and electric vehicles. But how will the incentive package actually play out in a complex web of stakeholders that include state-run India Rare Earths Ltd (IREL)? Mint explains the goal of the scheme, the roles of various stakeholders, and how incentives will be awarded.

Rare earth magnets are exceptionally powerful permanent magnets made from alloys of rare-earth elements. They are critical to modern technology as their unmatched strength-to-size ratio enables the high efficiency and extreme miniaturization of electric vehicle motors, wind turbines, and portable electronics.

China accounts for about 60% of the world's rare earth mining, and 90% of processing capacity. According to a 15 December notification by the ministry of heavy industries, the government will support the manufacturing of sintered neodymium-iron-boron (NdFeB) magnets—the strongest permanent magnets commercially available.

Broadly, the manufacturing process has three steps: The government said India has upstream capabilities in mining, separation and oxide refining, but almost no industrial-scale midstream capabilities, forcing Indian manufacturers to import all rare earth magnets they need. The goal is for India to be in a position