India’s ambitious push to build a robust domestic ecosystem for rare earth minerals and magnets—critical for electric vehicles, renewable energy, and advanced electronics—has collided with a new, formidable obstacle: China’s recent expansion of export controls on rare earth processing equipment. As reported by The Economic Times and Business Standard, this move has sent ripples through Indian industry and government circles, casting uncertainty over the country’s ₹7,300 crore incentive program aimed at boosting local manufacturing.
On October 27, 2025, China’s Ministry of Commerce announced it would further restrict the export of machinery and materials used in rare earth processing. The new rules specifically target centrifugal extraction machines and intelligent impurity-removal equipment—essential tools for refining ionic rare earth ores into the high-purity materials needed for advanced magnets and other high-tech applications. Exporters of these items must now obtain special licenses and declare whether their products could serve dual-use purposes, both civilian and military. Beijing has justified these measures as necessary to “safeguard national security,” echoing similar restrictions placed earlier this year on the export of medium and heavy rare earth materials.
This policy shift has immediate and far-reaching consequences for India’s rare earth ambitions. The government’s newly approved incentive scheme, which was cleared by the Expenditure Finance Committee and now awaits final Cabinet approval, earmarks ₹6,500 crore for capital investment and ₹800 crore for operational support. The centerpiece of the plan—likely to be named the Scheme to Promote Sintered Rare Earth Permanent Magnet Manufacturing in India—aims to create a fully domestic value chain for rare earth magnets, with a target annual output of 6,000 tons over seven years. These magnets are indispensable in electric vehicles, wind turbines, defense systems, and consumer electronics.
Yet, as nearly fifty project proposals await approval under the scheme, industry experts warn that the latest Chinese controls could derail or at least delay the rollout. India’s rare earth industry remains heavily reliant on Chinese equipment and technology for processing, making it vulnerable to policy shifts from Beijing. As one senior auto industry executive, speaking to The Economic Times on condition of anonymity, put it: “China’s commerce ministry has issued a notification extending export controls also to rare earth production and processing equipment, and rare earth raw and auxiliary materials. This may impact the new scheme the Centre has announced to incentivise local manufacturing of rare earth magnets.”
Alternatives do exist—Germany and Japan manufacture some of the required technology and equipment—but these options come at a steep price. According to senior industry executives, sourcing rare earth processing equipment from these countries would significantly raise project costs, potentially threatening the financial viability of many ventures. With China currently accounting for 61% of global rare earth production and a staggering 92% of processing capacity, as highlighted by the International Energy Agency, its dominance is hard to sidestep.
For India, the timing could hardly be more challenging. China’s export restrictions are not occurring in a vacuum; they are part of a broader geopolitical chess game, particularly in the context of its ongoing trade war with the United States. As reported by South China Morning Post, President Xi Jinping is expected to meet with US President Donald Trump at the upcoming Asia-Pacific Economic Cooperation (Apec) summit. However, analysts caution that China is unlikely to reverse its export controls on rare earths, even if the US agrees to scale back some of its own escalatory trade policies following a truce brokered earlier this year in Geneva.
China’s latest measures represent a significant counter-attack in the trade war, moving from a defensive posture—reducing its reliance on exports to the US—to a more offensive strategy. According to South China Morning Post, “China’s export controls on rare earth products and technologies represent the first major counter-attack by China over the course of the trade war.” The US, on the other hand, is described as pursuing a strategy of economic escalation, leveraging its dominance in artificial intelligence and technology to stifle China’s growth. Yet, as the same report notes, this approach has its limits, with the US economy propped up by “bubbles and weapons” and the dollar’s reserve currency status.
For India, the global tug-of-war over rare earths underscores the urgency of building self-sufficiency. The new incentive scheme is a bold start, but as reported by Business Standard, true self-reliance will require more than just financial outlays. Experts stress the need for India to diversify its technology partnerships, invest in domestic research and development, and build indigenous manufacturing capabilities for critical equipment. As the incentive program moves toward Cabinet approval, the government faces mounting pressure to insulate its critical minerals strategy from external shocks and geopolitical disruptions.
China’s dual-use export controls have also introduced new layers of bureaucracy and compliance. Under the April 4 notification, exporters must now seek a license from China’s commerce department after obtaining an end-user certificate from the buyer, certifying that the items will not be used for weapons of mass destruction or their delivery systems. This requirement, initially aimed at medium and heavy rare earth-related items, has now been extended to the very machinery and auxiliary materials Indian firms need most.
Despite the hurdles, India’s strategic imperative is clear. Rare earth magnets form the backbone of cutting-edge sectors, from green energy to national defense. The government’s ₹7,300 crore scheme is designed not only to boost local manufacturing but also to reduce the country’s exposure to global supply chain shocks. However, as nearly fifty applications for the scheme remain pending, the path forward looks more complex than ever.
Industry leaders and policymakers are now grappling with difficult choices. Sourcing from Germany or Japan could keep the initiative alive but at a much higher cost, potentially making Indian-made magnets less competitive globally. Alternatively, accelerating domestic R&D and fostering new technology collaborations could help bridge the gap—but these are long-term solutions that may not address immediate bottlenecks.
As India weighs its options, the stakes are rising not just for its own industrial ambitions but for the broader global contest over critical minerals. The world is watching to see whether India can break free from China’s shadow and carve out a space in the rare earth supply chain. For now, the road to self-reliance is paved with both promise and peril—a high-stakes race shaped as much by geopolitics as by economics.
With the Cabinet set to consider the incentive scheme and China’s export controls tightening, the coming months will test India’s resolve and ingenuity. One thing is certain: the quest for rare earth self-sufficiency has never been more urgent, or more complicated.
