India’s booming automobile sector ranked third in the world is grappling with a looming crisis. China’s abrupt decision in April to curb exports of rare earth magnets, which are critical for electric vehicle motors and common components like power windows and audio systems, has sent shockwaves through India’s auto manufacturing ecosystem. Industry insiders and executives warn that unless supply chains stabilize, production could grind to a halt as early as June.
The Directorate General of Foreign Trade (DGFT) has rushed to issue end-use certificates for over 30 consignments, ensuring the magnets are not re-exported or used for military purposes. But even this stopgap has done little to mask India’s deeper vulnerability in depending on a single geopolitical rival for essential technology components.
From Factories to a Freeze: The Supply Chain on Edge
The disruption stems from China’s new export policies requiring approval for all shipments of permanent magnets, especially those with potential defense or high-performance applications. While India has resumed imports after complying with certification requirements, supply continues to lag, with some consignments held back due to bureaucratic confusion over licensing protocols.
According to internal documents from the Society of Indian Automobile Manufacturers (SIAM), production for key brands could halt by early June. Executives from Maruti Suzuki, Mahindra & Mahindra, and Tata Motors participated in emergency meetings with the commerce ministry on May 19. The message was clear: if just one magnet is missing, a car cannot be manufactured.
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Inventory estimates showed stockpiles of these magnets could run dry by end-May. India imported 460 tons of rare earth magnets in FY24 and expects to increase that to 700 tons this year, valued at over $30 million. But that target may be elusive unless export licenses from Beijing continue unimpeded.
China’s Monopoly and the Shadow of Geopolitics
China controls over 90% of global processing capacity for these magnets, and the restrictions were introduced partly as a retaliation to U.S. trade measures and tariffs initiated under Donald Trump. Indian companies, while not the intended targets, have been caught in the crossfire.
Despite reassurances from China’s embassy in New Delhi that they are facilitating trade “in accordance with regulatory norms,” the process remains mired in red tape. Importers must not only secure end-use certificates from Indian ministries but also get validation from the Chinese embassy, which forwards the documents to suppliers for licensing. Any delay at any step risks halting shipments.
Some producers supplying Volkswagen and other global brands have seen clearances, but Indian firms say strained diplomatic ties have made their applications slower to process.
The Road Ahead: Policy Push and Self-Reliance Goals
With the threat of a cascading halt in vehicle manufacturing, industry groups are urging the government to negotiate directly with China for streamlined clearances. Simultaneously, there’s renewed focus on domestic production of rare earth magnets, a capability India currently lacks at commercial scale.
SIAM and the Automotive Component Manufacturers Association (ACMA) have jointly submitted a report warning, “Though the cost of imported magnets is minuscule, the risk is catastrophic if even one is missing.” The urgency of the situation has reignited policy debates around Atmanirbhar Bharat (self-reliant India), particularly in critical components for EVs.
Until an indigenous solution materializes, India’s automotive future remains partially at the mercy of a foreign gatekeeper.