India's ₹7,280-crore magnet PLI faces a credibility gap

The June 29 deadline for India's ₹7,280-crore production-linked incentive (PLI) scheme for rare-earth permanent magnets is approaching with a problem: too few technically credible bidders. The government approved the scheme last November as a cornerstone of its rare-earth supply chain ambitions. The response has been lukewarm, according to multiple industry participants quoted in a Mint report.

Rare-earth magnets are critical for electric vehicles, wind turbines, fighter jets and defence systems. China controls roughly 90% of the global supply chain from mining to finished magnets. Beijing's export curbs last April demonstrated that leverage. Sona Comstar, India's largest auto component maker, found its supply lines choked. "We are the single largest affected party in the country," CEO Vivek Vikram Singh told Mint.

India holds an estimated 7.23 million tonnes of rare-earth oxide deposits, one of the world's largest reserves. Yet between 2022 and 2025, it imported 84%-90% of its rare-earth magnets from China. The PLI was designed to change that. It offers up to five companies the chance to build integrated plants totalling 6,000 tonnes per year, with incentives of up to ₹2,150 per kg over five years plus a 15% capital subsidy.

The financial bar is the first filter. Each plant slot requires a net worth of ₹180 crore to ₹375 crore. That has produced an inversion: technically prepared smaller players cannot enter while companies from unrelated industries remain eligible. Shiva Kumar H.M., founder of Bengaluru-based Mecwin Technologies, is the clearest example. He worked on the floor of a Chinese magnet factory, consulted for the Defence Metallurgical Research Laboratory, ran trial batches from 50 tonnes of IREL oxide, and secured a formal agreement with Germany's Fraunhofer Institute covering the full metal-to-magnet process. He also arranged 2,000 tonnes of neodymium-praseodymium oxide from African suppliers at 20% below IREL's price. His net worth is ₹125 crore short of the ₹180 crore threshold.

When he tried to buy a vacuum sintering furnace, a Japanese supplier quoted ₹93 crore for machinery that normally costs ₹21 crore. "It (the PLI process) has created hype with equipment manufacturers who are mostly based out of Germany and Japan," he said.

Vikram Dhoot of Pune-based Ashvini Magnets cracked oxide-to-metal conversion, the hardest step in the chain. The PLI requires winners to do that in-house. Dhoot can only enter through a consortium with a winning bidder, sharing incentives based on each party's contribution. "Integrated projects spanning the entire value chain are the most effective way to ensure transparency, fair value distribution and long-term competitiveness," he said. "Capital remains a key constraint for small companies like us."

The risk of frivolous bidders hangs over the process. The Rajesh Exports episode with the battery PLI is a cautionary tale: a diamond trading firm won a battery PLI but built no physical assets. For the rare-earth magnet PLI, the government appointed a technical evaluation committee to vet bids before financial bids open. Among those in the fray are Midwest Advanced Materials, a granite quarrying company, and 20 Microns, a chemicals maker reportedly still looking for process know-how. Mint reported that Midwest imported Chinese magnet processing equipment last year. Deependra Singh, former managing director of IREL, noted the tender allows inclusion of machinery bought since April 2025. "It remains to be seen if it bought new or used equipment," he said.

Sona Comstar is partnering with Proterial, Hitachi's magnet arm, for a minority stake in a venture expected to bid. Proterial is also evaluating a plant in India independently. Other large groups like Tata, L&T, Reliance and JSW have expressed interest but not submitted bids yet, Mint reported. Vedanta appears to have moved quietly through subsidiary NAN MagneTech, which secured land in Tirupati and plans Phase 1 capacity of 1,200 tonnes with a ₹1,250-crore investment.

Deependra Singh, who oversaw IREL's operations, framed the hesitation structurally. "Ideally, magnet making should be the preserve of smaller specialized companies or very large operations," he said. "A PLI scheme targeting three players would have made better sense." Sending 26 companies into the market for technology and equipment simultaneously has pushed up prices and stretched decision timelines, he added.

The biggest structural issue is grade ambiguity. The PLI targets sintered NdFeB magnets but specifies no minimum performance standard. The flat ₹2,150 per kg incentive applies equally to a commodity magnet for an e-bicycle and a high-coercivity grade for a defence radar. Lower-grade magnets are not on China's restricted export list. Singh of Sona Comstar warned: "On the one hand, Chinese imports may still be cheaper for lower grade magnets, while the scheme may not achieve the real reason why it was set up for–self-sufficiency in high grade magnets."

The penicillin PLI offers a cautionary parallel. That scheme, notified in July 2020, created local producers but raised input costs for pharmaceutical companies. The same dynamic could hit automakers and small businesses that depend on standard-grade magnets.

India imported $212 million worth of magnets in 2025-26. Deependra Singh estimates India's demand at about 5% of global consumption; the US accounts for 20%. Even if all five PLI winners commission plants on schedule, which he considers unlikely before 2029, India will cover only a fraction of domestic requirements.

Singh of Sona Comstar offered a measured verdict on the scheme itself. "The move by the government, though late, is a great start," he said. "For the PLI scheme to be effective in the long run, there have to be incentives for domestic companies to innovate and secure long-term needs."