India is set to nearly triple its incentive programme for rare earth magnet manufacturing to more than Rs 700 billion (approximately $788 million) as it looks to strengthen domestic capacity in a sector currently dominated by China, according to officials familiar with the matter.

The proposal, which awaits Cabinet approval, represents a sharp increase from the earlier Rs 240 billion ($290 million) plan aimed at securing critical materials for the electric vehicle, renewable energy and defence sectors. The final allocation, however, could still be revised, the officials added.

The expansion aligns India with global efforts to diversify rare earth supply chains following China’s move to tighten export controls earlier this year, disrupting supplies for automakers worldwide. China currently processes about 90 per cent of global rare earth output.

Prime Minister Narendra Modi has previously stressed the need to prevent “weaponisation” of critical minerals and promote diversified, stable supply chains. However, India’s push faces challenges including limited domestic expertise, funding constraints and long project timelines.

Under the proposed scheme, around five companies are expected to benefit from a mix of production-linked and capital subsidies. The government is also funding research into synchronous reluctance motors — an emerging technology that could reduce dependence on rare earth materials.

Currently, no Indian-origin firms have received import licences for rare earth magnets from China, though a few foreign suppliers have shown interest in providing materials to India. The country’s annual demand for rare earth oxides stands at around 2,000 tonnes — a volume global producers can readily supply.

India hopes that an expanded incentive package will attract global magnet manufacturers to establish local subsidiaries or joint ventures, strengthening the country’s position in critical mineral value chains and reducing its reliance on Chinese imports.

Analysts caution, however, that India’s plan could face headwinds if China eases export restrictions for the US and European Union, as lower global prices might discourage long-term investments in India’s emerging rare earth sector.