India is considered as the fifth largest rare earth element (REE) reserve with 21 million metric ton deposits. But the country faces challenges with the extraction of REE, due to the resources being of low-grade and contaminated with radioactivity. This makes India to be dependent on China at large for the import of rare earth elements.

Impact of Rare Earth Supply Cuts on India

The year 2025, has been an unpredictable year for geopolitics. With few countries being at war, the US tariff system, China has imposed a stricter export control over its resources which includes REE and permanent magnets.  In India, processed rare earth elements are utilized in many sectors, including the manufacturing of electric vehicles, defense, wind turbines and electronics. India imports 85% of its rare earth magnets and processed REE compounds from China. In the year 2023-24, India imported 2,270 tons of REE from China. This highlights that India has been significantly dependent on China for high-purity REE elements like neodymium magnets. The reduction in the supply of these resources can significantly affect India manifold, due to over-reliance on China.

The significant reduction in the export of the REE can create scarcity on the global level, disrupting the global supply. This can result in inflation of input costs in the global market. As REE is used in the manufacturing of crucial products from automobiles to defense, the scarcity of resources can affect the manufacturing of these products. This can cause uncertainty among manufacturers, leading to delayed product development. As the manufacturing industries' dependence on the REE is high, long-term planning in the absence of such crucial resources is impossible. The national security and sustainable growth of the nation would be impacted the most without secure access to REE.

Sectors at Risk Due to Rare Earth Export Cuts

Rare earth elements are major resources used in the manufacturing of products across various sectors. To begin with, REE is utilized in basic manufacturing like electric vehicle motors, phones, laptops, speakers, and fans, and permanent magnets in Wind turbines. Major sectors like the guidance system, radar and other high-precision systems in our defense and aerospace are manufactured with the utilization of rare earth elements.  All the above industries will be affected due to the squeezed exports of REE from China. This can severely affect the Indian manufacturing industry and defense sector massively.

Considering that REE has been utilized for the manufacturing of motors and batteries for major defense strategy devices, India needs to be less reliant on China and discover innovative means to utilize its own resources.

Strategies to Strengthen India’s Rare Earth Supply

India has to tap into different sources to evade the repercussions of China's stringy export policy. There are several alternative actions India can opt for, to suffice the present situation. With China on the restriction to export mode, India can opt for diversified sources for the exportation of REE. India can explore the resources from countries like Australia and Vietnam. In particular, sourcing must be done from different countries to lessen the future dependency of India on another country.

The government should take a step forward by backing up organizations like Indian Rare Earths Limited (IREL). Through designing strategic plans to support domestic extraction and processing of real earth elements. This can lessen the dependency on other nations, and become more self-reliant. To make such plans possible more investments in research and innovation in this field should be made. This involves investing and utilization of REE-free motor technologies like induction or switched reluctance motors. This can facilitate the efficient and effective usage of the REE resources available in India.

One of the options that have to be focused on more is the recycling option. There should be a course of action for recycling e-waste and end-of-life magnets. This can create a surplus for the already existing resources. Even though there are many existing pilot projects on this plan, the result has not yet been achieved as much.

About Author

Nishant Lakkar is the founder and CEO of AAA Rating Consultants & advisors (AAARCA). Prior to AAARCA, Nishant had guided the organizations through his leadership abilities and his expertise in various knowledge like financial risk management, corporate finance, fundraising, urban development, muni and green bonds. He has worked in ICRA for 15+ years, where he has provided guidance for large analytical teams and delivered accurate credit ratings efficiently. Nishant also has expertise in analyzing market development and credit rating of large corporations and he has provided his assistance to regulatory and government bodies with projects like AMRUT and Smart City Mission.

AAARCA provides credit rating advisory services and financial consultancy to both public sector and corporate sector entities. The organization’s mission is to fill in the gap between the corporates and rating agencies. AAARCA has been assisting corporates by guiding them with IPO, funding and investment by providing balance sheet improvement programs.