India may ease EV localisation norms to address rare earth material shortage
The Indian government is considering a temporary relaxation of localisation norms for automakers as the industry struggles with a global shortage of rare earth magnets, which are critical for electric vehicle motors. This potential policy shift comes in response to appeals from manufacturers who are facing increasing challenges due to China’s export restrictions on these essential materials.
The Ministry of Heavy Industries has reportedly asked the country’s key automotive testing agencies to assess whether existing domestic value addition (DVA) requirements can be adjusted in the short term without undermining the objectives of India’s EV incentive programmes. Agencies involved include the Automotive Research Association of India (ARAI), the International Centre for Automotive Technology (ICAT), the Global Automotive Research Centre (GARC) and the National Automotive Test Track (NATRAX).
Under current regulations, automakers must meet strict localisation criteria to qualify for subsidies under schemes such as 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). For instance, the PLI-Auto scheme mandates that at least 50% of vehicle components be domestically sourced.
However, due to recent disruptions in the availability of rare earth materials, particularly neodymium-iron-boron (NdFeB) magnets, manufacturers are being forced to import fully assembled electric motors. This raises compliance concerns, as importing finished components risks breaching localisation norms and could result in the loss of government incentives.
Industry experts note that while a full exemption from localisation rules may be unlikely, a limited timeline relaxation could be a practical solution. According to one consultant, “It’s difficult to decide where to draw the line on localisation relaxations and when to reverse them. But temporary adjustments in deadlines could offer breathing room to the industry.”
Cost pressures are another major concern. Importing fully built motors incurs a basic customs duty of 10–15%, compared to just 2.5–5% for sub-components or raw magnets. This, coupled with higher logistics costs and OEM markups, could raise overall expenses by 18–25% for Indian automakers.
Beyond economics, strategic risks are also being highlighted. Analysts warn that greater reliance on imported motors could deepen India’s dependence on China, which currently controls around 85% of the world’s rare earth refining capacity. This not only affects cost structures but also poses long-term challenges for supply chain resilience and domestic capability development.
The PM E-Drive scheme, which includes a phased manufacturing roadmap, specifies which EV components must be produced locally and which can be sourced internationally. Any shift in these criteria, even temporarily, could have lasting implications for India’s ambitions in the electric mobility sector.
As the government weighs its options, it remains to be seen how it will balance national industrial policy with the immediate operational realities faced by the auto sector.
