India needs a wide-angle approach to satisfy growing demand

On paper, this should have been a turning point. With a domestic source finally emerging, why didn’t India’s leading EV makers—Ather and Bajaj Auto included—switch from Chinese magnets to homegrown supply? As The Ken reported, they mostly haven’t. India may produce the raw rare-earth metal, but it still depends heavily on China for these magnets and the technology that makes them.

This gap between metals and magnets reveals a deeper reality. The geopolitical supply chain has grown too entrenched to unwind quickly. What looks like an ‘India solution’ was only partial, arriving late and without the scale or reliability required.

There is a reason why Ather and Bajaj still buy Chinese magnets. Those needed for EV two-wheelers are sintered NdFeB magnets, far more advanced than the bonded magnets historically made in India for sensors and small motors. Even with the Nd-Pr breakthrough, India lacks commercial-scale capability in sintered magnets that meet automotive-grade quality.

The persistence of Chinese sourcing is thus structural, not ideological. China dominates refining and magnet manufacturing, thanks to decades of subsidies, scale and tolerance for environmental costs. Indian firms like Sona Comstar, Uno Minda and Mahindra are testing magnet lines, but few produce at EV volume. And switching magnet suppliers is not like swapping screws. It involves product redesign, safety testing, re-homologation and warranty risk.

So while India now produces some rare-earth metals, the risk of using unproven magnets is too high. When China recently tightened export rules on heavy rare-earth magnets, Ather, Bajaj and TVS felt the shock.

This is a preview of a wider vulnerability. China has weaponized its control over various crucial inputs. It has an export licensing regime for gallium and germanium (critical for semiconductors and telecom), and controls on graphite (EV battery anodes).

Supply chains have become tools of statecraft. Yet, our vulnerability also reflects years of underinvestment in domestic capacity. We relied on cheap imports instead of building strategic resilience. And now upstream capacity cannot be built overnight.

To reduce dependence on China, we need smart fiscal support for local suppliers. We must take care of three things: (a) high capital costs for cells and refining; (b) long learning curves to achieve automotive grade yields; and (c) the risk of factory demand switching away.

Fiscal tools can include capex subsidies and long-term low-cost credit. And incentives linked to volume, quality and reliability, not just capacity. This has to be selective, focused and time-bound. Another fiscal approach is to cover first-loss capital or back private investment with a sovereign guarantee. Demand aggregation, as done for LED making, can be used to pool multi-year purchase contracts across automobiles, electronics, railways and PSUs to assure suppliers scale.

To augment domestic capacity, countries like the US, EU, Japan and South Korea all have fiscal components to their industrial policy. The US Chips Act supports local semiconductor, battery and clean-energy manufacturing. The EU has outlays to support batteries, hydrogen and critical materials, and a proposed Critical Raw Materials Act to limit single-country dependence. Japan is attracting TSMC fabs. This is neither full decoupling nor self-sufficiency.

India’s production-linked incentives echo this philosophy, but the difference between success and mediocrity will lie in full value capture. The proposed Rare Earth Permanent Magnet mission may be the missing piece that moves India beyond rare-earth metal production to full-scale NdFeB magnet making.

As for geopolitics, must we pick a camp? China will remain a major trade partner and we can’t decouple from it abruptly. Magnets, wafers, telecom cores, battery materials and pharma inputs all need diversified sourcing: some domestic, some allied, some Chinese.

India needs neither a hostile stance towards nor a full embrace of China, but strategic symbiosis. Where dependence is low, we can trade freely for mutual benefits. Where chokepoints exist, we can de-risk aggressively. We can pursue alliances and fiscal support to build alternative capacity. And we must stay away from rigid blocs while supporting a rules-based trade order.

The magnet story is not about corporate reluctance or lack of nationalism. Ather and Bajaj chose the only reliable option available and it exposed the cost of delayed upstream investment.

Now that geopolitics has entered the bill of materials, India must treat all critical inputs as strategic infrastructure—and use targeted fiscal policy, regulatory clarity, long-term contracts and global partnerships for minerals and technology. The Niti Aayog could map out the potential strategic challenges, so that ‘insurance’ or countervailing measures can be planned much ahead. And large upfront subsidy to industry should include a clause giving the government a “carried” interest in gross profits.

Success would help India move beyond being just a vast market and assembly hub to becoming a producer of materials and technologies in fast-growing demand.

The authors are, respectively, senior fellow and vice president, Pune International Centre.