China's rare earth curbs expose India’s industrial supply risk

China’s decision to restrict exports of rare earth magnets has sent shockwaves through India’s auto and clean energy sectors, exposing deep-rooted vulnerabilities in the country’s dependence on critical imports. The move, which industry experts describe as a geopolitical warning, threatens to disrupt production lines from August and demands urgent action to secure India's industrial future.Rare earth magnets, vital components for electric vehicles (EVs), wind turbines, and home appliances, have been subject to export restrictions by China since April in response to elevated tariffs imposed by the United States. With China controlling over 90% of the global processing capacity for these magnets, India now finds itself grappling with a looming supply crisis.

“In auto, I would say the concern is more serious than what has come out till now,” said Rajiv Memani, President of the Confederation of Indian Industry (CII). According to him, the current shortage could be a watershed moment for India to re-evaluate its reliance on foreign supply chains, particularly those dominated by China.The alarm bells are ringing across the Indian automobile sector, where manufacturers are heavily reliant on Chinese rare earth magnets. Several automakers are likely to face production disruptions from next month if alternate sources or solutions are not found, industry sources said.

The Society of Indian Automobile Manufacturers (SIAM) and the Automotive Component Manufacturers Association of India (ACMA) have both called for immediate government intervention. The Ministry of External Affairs confirmed that Indian authorities are in contact with Chinese counterparts to address the issue.Industry experts say that this incident is emblematic of a broader vulnerability. “I feel it is a good wake-up call for India—not only for rare earths but for all critical areas like APIs, penicillin, and other essentials where we are dependent on imports,” Memani said.

According to Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), the need for action is both strategic and immediate. “The window to act is narrow, but the urgency is now unmistakable. China’s actions are no longer just a warning—they are a wake-up call,” he said.Srivastava recommends reverse-engineering low-to-mid-tech imports, incentivizing domestic production, and investing long-term in deep-tech manufacturing as pathways to reduce India’s economic dependence on its geopolitical rival.

GTRI noted that nearly 90% of India’s imports from China fall within the low-to-medium technology category, including textile machinery, motors, pumps, valves, bearings, and even stationery. “These are not beyond India’s technological reach. A strategic and phased approach can help reduce this dependence significantly,” the think tank said in a note.However, in high-tech sectors like electronics, EV batteries, and solar panels—where Chinese firms supply over 80% of India's requirements—the challenge is steeper. GTRI emphasized that India must nurture advanced manufacturing capabilities through targeted fiscal and regulatory support, coupled with long-term investments in R&D, infrastructure, and skilled talent.

India’s trade deficit with China soared to nearly $100 billion in FY2024-25, underscoring the scale of economic interdependence. Analysts say this leaves India increasingly exposed to Chinese economic coercion.This is not the first time China has used export restrictions to pressure New Delhi. Since mid-2023, Beijing has imposed curbs on critical minerals such as gallium, germanium, and graphite—materials essential for India’s electronics, EV, and defense sectors. The pressure escalated in June 2025 when Chinese battery giant CATL reportedly instructed Foxconn to withdraw all Chinese engineers from its unit near Chennai.“China’s message is blunt: India’s industrial growth remains dangerously exposed to Chinese inputs, and any attempt to ‘de-risk’ supply chains will carry short-term pain,” GTRI stated.