Amid concerns from automakers about losing government incentives for importing fully built motors to bypass China’s restrictions on rare earth magnet exports, the Centre is considering a possible relaxation of localisation norms, The Mint has reported.
According to the report, the Ministry of Heavy Industries has asked testing agencies to evaluate whether current localisation requirements for incentives can be temporarily eased. Three individuals familiar with the matter told Mint, on the condition of anonymity, that these agencies have also been tasked with studying the broader impact such a relaxation could have.
“The testing agencies have been asked to assess the potential impact on manufacturers and their localisation, their domestic value addition (DVA). The Automotive Research Association of India (ARAI) will do the assessment to see if relaxations are necessary,” one of the sources told Mint. ARAI, an autonomous testing and certification body, operates in coordination with the government under the heavy industries ministry.
To claim central subsidies, automakers must meet certain domestic value thresholds. However, due to China’s clampdown on exports of rare earth magnets—critical for electric motor manufacturing—automakers have sought to import fully assembled motors, which risks breaching localisation norms and disqualifying them from incentives. In response, manufacturers have appealed to the government for interim relief.
Currently, four testing agencies—ARAI, International Centre for Automotive Technology (ICAT), Global Automotive Research Centre (GARC), and National Automotive Test Track (NATRAX)—are authorised to assess localisation levels and compliance with subsidy eligibility criteria under government schemes.
The two main subsidy frameworks in question are the Production Linked Incentive Scheme for Automobile and Auto Components (PLI-Auto) and the PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-Drive) scheme. Under PLI-Auto, automakers are required to ensure that 50% of a vehicle’s components are made in India.
While the specific nature of the relief being considered is still under discussion, any temporary relaxation could have a substantial effect, especially as the PM E-Drive scheme is set to expire in less than nine months. The PLI-Auto scheme, in contrast, enforces a stringent localisation bar, and any deviation would represent a major shift in the policy’s implementation.
An industry consultant working closely with automakers told Mint, “It is not easy to relax localization norms because you don't know where to stop and when to revert. Timeline relaxation can be considered, but a full localisation norm relaxation is difficult.”
Cost concerns are also front and centre. Harshvardhan Sharma, group head for auto tech and innovation at Nomura Research Institute Consulting & Solutions India, told Mint that disruptions in the supply of neodymium-iron-boron (NdFeB) magnets are pushing Indian automakers toward importing fully assembled traction motors.
“This shift is both a cost and strategic concern,” Sharma said. He explained that fully built motors attract a basic customs duty of 10-15%, compared to 2.5-5% on magnet imports or sub-components. “The delta in duties, combined with logistics and markup by motor OEMs, can increase the landed cost of motors by 18-25%,” he added.
Beyond cost, Sharma cautioned that this shift increases India’s exposure to supply chain concentration risks, given China’s dominance over 85% of the global rare earth refining capacity. “India’s reliance on fully built motors effectively transfers part of the value chain and technological control offshore,” he said.
The PM E-Drive scheme, which follows the phased manufacturing programme, outlines specific components that must be made locally and those that can be imported, forming the basis of its localisation criteria.
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