Why India lost out to China in the rare-earths race

Rare earth

India's rare earths journey started with the setting up of the Public Sector Undertaking (PSU) called the Indian Rare Earth Limited in 1950. It was a bold move to get a toehold in a sector that would eventually become the backbone of the global electronic industry. But a slew of reasons ranging from lack of demand initially to IREL's initial focus on other industrial minerals that came from beach sands and regulatory hurdles meant that India lost out on this opportunity.

India's technological dependence on China due to lack of demand meant importing finished magnets proved to be far more economical. Moreover, India's rare earth elements are found in monazite sands -which also contain thorium (a radioactive element) - classifying them as 'atomic' to stringent and time-consuming regulatory hurdles for clearances have all led to India losing out on the rare earth opportunity. The fact that the sector has been largely dominated by the government has added to the challenges.

Long gestation period for projects and lack of incentives have largely kept the private sector away from the sector. India has the world's fifth largest rare earth reserves in the world and accounts for less than one percent of global production.

The domestic rare earth element production capacity of India is around 3,000 tonnes. Among this, IREL produces around 500 tonnes of Neodymium-praseodymium (NdPr) oxide a year, which is crucial for production of REPMs. Currently, IREL is the only company which makes NdPr at a relatively large scale. NdPr is the main raw material for manufacturing of permanent magnets.

However, in 2024-25, India imported 43,610 tonnes of REPMs Rare Earth Permanent Magnets - used in Electric Vehicles, Aerospace, computers et cetera-- from China, according to data sourced from Ministry of Heavy Industries. About 90% of imports of REPMs were sourced from China.

IREL, works under the Department of Atomic Energy, has built an exclusive plant for REPMs based on indigenous technology in Andhra Pradesh's Vishakhapatnam. Even as the government has renewed its focus on reducing India's dependency on China for rare earths, IREL has been running without a chairperson and Managing Director for the past one year.

The Public Enterprises Selection Board (PESB) in July 2025 recommended Sarada Bhushan Mohanty for the full-time CMD position. However, this appointment is subject to final approval by the Appointments Committee of the Cabinet (ACC), which is pending.

As such, the company is profitable (since 1997-98), and is focused on expanding its production capacity, supporting value chain industries, and advancing R&D through its facility. But its output capacity is not enough to meet the growing demand for REPMs in India, analysts said.

For perspective, the global rare earth production landscape is dominated by China. In 2024, China's total annual rare earth mining quota was about 270,000 tonnes. And the two companies-- ​China Northern Rare Earth (Group) and China Rare Earth Group, were collectively responsible for the vast majority of this quota.

“India needs more companies to do exploration, mining and processing of REPMs,” another analyst said, not willing to be identified. “IREL can’t do it alone. Even if incentives are provided. The demand is significantly high."

IREL primarily produces mixed rare earth chlorides (MRCL) -- a light rare earth element -- in large quantities. In FY24, 5,872 tonnes of MRCL was produced by IREL, which rose 16% from the levels of FY21 (5,034 tonnes); even though the total MRCL production capacity of the company is over 11,000 tonnes.

IREL's profit after tax (PAT) in FY24 stood at Rs 1,012 crore, up 25 percent on year, and 246 percent higher from FY21.

Moneycontrol had reported on October 17 that IREL (India) Ltd will supply raw materials to private companies under the government’s upcoming scheme, and will also bid for it to receive financial support. “Once the scheme is out, IREL has been asked to supply NdPr to certain categories of the selected bidders,” an official told Moneycontrol earlier.

Granting incentives for mining and processing rare earths, introducing new and relevant technology and clearing bureaucratic delays are some suggestions made by analysts to help India’s only rare-earth permanent magnets (REPMs) manufacturer IREL scale their operations.

India has not "explored enough", IREL and other PSUs, such as Kerala Minerals and Metals Ltd (KMML), can be incentivised to go for deep exploration of rare earth minerals, said Satnam Singh, Senior Practice Leader & Director at Crisil Intelligence.

"India has substantial experience in mining coal, limestone, iron ore. But when it comes to rare-earth, the overall capacity in the country is limited. We didn’t mine enough, and the problem became pronounced when China put restrictions," Singh said, adding that much-work has to be done going forward.

“India needs more companies to do exploration, mining and processing of REPMs,” another analyst said, not willing to be identified. “IREL can’t do it alone. Even if incentives are provided. The demand is significantly high."

At present, China dominates rare earth element production, accounting for about 70 percent of the of global output. The United States contributes about 12%. And India produces less than 1%.

According to official sources, the central government has firmed up a scheme, worth Rs 7,300 crore, for setting up rare earth magnet processing units and supply chains in India. This scheme is expected to run for seven years, once it receives Cabinet nod.

Crisil’s Singh said that he has pinned hope on the National Critical Mineral Mission, launched in April 2025, to boost the mining, production, as well as processing of rare earths and other critical minerals.

“The NCMM doesn’t only talk about domestic production, but also going overseas and acquiring assets that can meet our supplies of rare earths. The NCMM points out right interventions needed for securing consistent supply of rare earths,” noted Singh.

Under the NCMM, the Geological Survey of India (GSI) has been tasked with conducting 1,200 exploration projects from 2024-25 to 2030-31. Earlier in 2021-22 and 2022-23, the GSI conducted reconnaissance surveys for rare earth elements (REEs) including neodymium in Sirohi and Bhilwara districts of Rajasthan. Additionally, the Department of Atomic Energy discovered around 1,11,845 tonnes of in-situ Rare Earth Elements Oxide (REO) in Balotra, Rajasthan.

Under the mission, a fast-track regulatory approval system has been introduced. “A new Exploration Licence (EL) will encourage private sector participation. Recovery of minerals from secondary sources like fly ash, tailings, and red mud will be promoted through relaxed rules and incentives. Efforts will also focus on trace mineral assessment, development of processing parks, and increased involvement of state governments and PSUs in the critical mineral value chain,” a government release on the mission, dated April 9, said.

(With inputs from Ishaan Gera)