In an important step to strengthen critical technology supply chains, the central government has approved Rs 1,345 crore to start domestic production of rare earth magnets, Heavy Industries Minister HD Kumaraswamy announced on Friday.

Kamran Rizvi, who is Secretary in the Ministry of Heavy Industries, said that the draft plan for processing rare earth magnets has already been shared for inter-ministerial consultations, preparing the way for a full policy launch.

Sources from PTI said that once these consultations are completed, the proposal will be sent to the Union Cabinet for final approval.

Rizvi added that the Rs 1,345 crore scheme is currently being reviewed by different ministries and is meant to provide “end-to-end” support to two companies for turning rare earth oxides into finished magnets.

This move comes following China’s decision in April this year to place export controls on seven rare earth elements and finished magnets. Under the new rules, exporters from China are now required to get licences and confirm that the materials will not be used for military purposes or sent to the United States.

PTI had earlier reported, quoting sources familiar with the matter, that the Ministries of Heavy Industries and Mines were working on guidelines to support local manufacturing of rare earth magnets and minerals, which are essential for industries like telecom, electric vehicles, and defence.

The new scheme is expected to support both private sector firms and public enterprises by offering incentives to build domestic capacity across the full chain, starting from mining and refining to making the final magnets, the report said.

“Magnets are what we are looking for. Anyone who provides us with magnets will receive an incentive. This (Rs 1,345 crore scheme) is the first draft we have placed before inter-ministerial consultation. It has been proposed that there would be two manufacturers,” Rizvi told PTI on Friday.

“(The) Rs 1,345 crore scheme has (proposed) two manufacturers,” Kumaraswamy replied while responding to a question at the press briefing.

According to a Reuters report on Thursday, sources said that Mahindra and Mahindra and Uno Minda have already shown strong interest in setting up local magnet production.

In a meeting held in June with the Ministry of Heavy Industries, Mahindra shared that it could either work with an existing producer or enter into a long-term supply agreement with a domestic company.

As the company is getting ready to launch new electric SUVs, its own demand for magnets is increasing. Uno Minda, which supplies parts to major carmakers like Maruti Suzuki, has also indicated that it is exploring the option of making magnets in India.

Their interest follows Sona Comstar, a company that makes gears and motors for international firms such as Ford and Stellantis, and was the first Indian company to officially express intent to make magnets domestically.

However, government officials said in interviews that a final decision on the investment will depend on what kind of incentives the scheme offers and how easily raw materials can be sourced.

India takes steps to secure resources

India, which imported more than 80 percent of its 540 tonnes of magnets from China in the last financial year, is already beginning to feel the effects of China’s tighter export controls.

As China controls over 90 percent of global magnet processing capacity, officials told PTI that this new scheme is essential to ensure supply for important products like electric motors, braking systems, smartphones, and missile guidance systems.

While China has the largest known reserves of rare earth elements at around 44 million tonnes, India stands third with about 6.9 million tonnes according to the United States Geological Survey.