Rare Earth Elements

12.06.2025

Rare Earth Elements

Context

China’s recent export restrictions on seven key rare earth elements (REEs) have disrupted global supply chains. For India, which relies heavily on Chinese imports of REE-based magnets, this development poses significant risks to both its automotive and defence sectors.

1. What Are Rare Earth Elements (REEs)?

REEs are a group of 17 chemically similar metals essential in high-tech industries. Despite their name, they are not scarce in nature but are difficult to extract and refine economically.

They are critical to:

• Electric vehicles and wind turbines
• Smartphones, sensors, and semiconductors
• Defence systems like radars, drones, and missiles

2. China’s Global Dominance and Export Restrictions

Monopoly in Supply

China currently commands:

• Around 70% of global REE mining
• Nearly 90% of refining and magnet-making capacity

This concentration gives China considerable leverage over international supply chains. The newly imposed export controls apply to strategic REEs like dysprosium and terbium, both crucial in manufacturing high-performance permanent magnets.

Nature of Restrictions

Exporters now need special licenses, which are often delayed or denied. The result is a potential bottleneck in the delivery of essential materials for industries worldwide.

Sectors Affected

• Automotive industry: Components for both EVs and conventional vehicles
• Defence sector: Precision-guided munitions, drones, radars
• Electronics and energy: High-efficiency motors, sensors, and renewable energy storage
   

3. Impact on India

Short-Term Pressures

• India's EV and auto sector face disruptions due to shrinking magnet inventories.
• Production schedules for electric motors and advanced electronics are at risk.

Long-Term Strategic Gaps

• India holds the fifth-largest REE reserves, but lacks large-scale refining or magnet-making capacity.
• IREL, a public-sector firm, dominates domestic production, limiting flexibility.
   

4. Policy Responses and Industry Strategies

Short-Term Measures

• Engaging in bilateral diplomacy to secure smoother export clearance from China.
• Seeking alternate suppliers from nations like Vietnam, Australia, and select African countries.
• Promoting the reuse and recycling of REEs from discarded electronics, batteries, and vehicle components.
• Temporary use of ferrite magnets, though technically inferior, as a stopgap.
   

Strategic Roadmap

• Building domestic refining and magnet-making facilities.
• Supporting research and development in alternative materials and sustainable extraction technologies.
• Encouraging joint ventures with technologically advanced and resource-rich countries to facilitate knowledge transfer.
   

5. National Security and Geopolitical Implications

REEs are not just economic inputs but strategic resources. India’s missile systems, satellites, and smart weapons rely on stable REE access. Overdependence on China raises national security risks and underscores the need for self-reliance in critical technologies.

6. The Way Forward: Strengthening India’s REE Ecosystem

To reduce dependence and enhance resilience, India needs a multi-pronged approach:

• Accelerate domestic exploration and extraction, involving both public and private sector players.
• Launch a National Rare Earth Mission to coordinate activities across mining, processing, R&D, and end-use applications.
• Include REEs under the Production Linked Incentive (PLI) scheme to attract investment and scale domestic manufacturing.
• Foster international partnerships with countries that have untapped REE reserves, including Australia, Brazil, and select African nations.
• Create a rare earth recycling ecosystem targeting e-waste and end-of-life electric vehicles to recover valuable materials.
   

Conclusion

India’s dependence on a foreign-controlled rare earth supply chain poses risks to its economic ambitions and national security. While China's export controls have exposed these vulnerabilities, they also offer India a timely opportunity to recalibrate its approach. With coordinated policy efforts, technological investment, and strategic collaborations, India can transform its rare earth potential into a self-reliant, globally competitive advantage.