India to assess easing auto localisation norms after Chinese rare earth magnet crisis
The Centre has asked testing agencies to check whether strict localization norms to claim incentives can be relaxed, three people aware of the development said. The heavy industries ministry has also asked these agencies to assess the likely impact of such a move, the people said on the condition of anonymity.
'The testing agencies have been asked to assess the potential impact on manufacturers and their localization, their domestic value addition (DVA). The Automotive Research Association of India (ARAI) will do the assessment to see if relaxations are necessary," one of the three people cited above said on the condition of anonymity. ARAI is an autonomous testing and certification agency set up by the automotive industry along with the government, and affiliated with the heavy industries ministry.
Vehicles must have specific amounts of domestic content to be eligible for central incentives. With the Chinese clampdown on exports of rare earth magnets used in motors, automakers have considered importing fully-built motors instead, but that would breach the localization norms and cut off incentives; to avert this, the manufacturers had approached the Centre for relief.
Four testing agencies—ARAI, International Centre for Automotive Technology (ICAT), Global Automotive Research Centre (GARC), and National Automotive Test Track (NATRAX)—have been notified under the schemes to assess localization levels and other criteria for manufacturers to claim benefits.
The two central subsidy schemes are the Production Linked Incentive Scheme for Automobile and Auto Components (PLI-Auto) as well as the PM Electric Drive Revolution in Innovative Vehicle Enhancement (PM E-DRIVE) scheme to subsidize electric mobility. Under the PLI-Auto scheme, 50% of the components used in a vehicle must be made in India.
Implementation issues
While the extent of the relief sought is still being discussed, even a temporary relaxation—as sought by the auto industry—would have a significant impact. The PM E-DRIVE scheme is set to lapse in less than nine months, making even short-term relief a big part of the scheme. On the other hand, the PLI-Auto scheme has a very high bar for localisation, making any deviation a major change in the way the scheme operates.
One expert indicated that a revision of the norm could be tough to implement.
"It is not easy to relax localization norms because you don't know where to stop and when to revert. Timeline relaxation can be considered, but a full localisation norm relaxation is difficult," said an industry consultant working with auto manufacturers.
Even importing fully built motors may prove to be costly, apart from increasing reliance on China. According to Harshvardhan Sharma, group head for auto tech and innovation at Nomura Research Institute Consulting & Solutions India, the disruption in rare earth magnet supply—particularly neodymium-iron-boron (NdFeB) magnets—is increasingly forcing Indian automakers to look at importing fully assembled traction motors.
'This shift is both a cost and strategic concern," said Sharma. He said fully built motors attract a basic customs duty of 10% to 15%, whereas magnet imports or motor sub-components may fall within the 2.5-5.0% duty bracket.
'The delta in duties, combined with logistics and markup by motor OEMs, can increase the landed cost of motors by 18-25%," he said. 'Beyond cost, this dynamic increases India's exposure to supply concentration risks, particularly given China's control over 85% of global rare earth refining capacity. India's reliance on fully built motors effectively transfers part of the value chain and technological control offshore."
The localisation criteria under PM E-DRIVE follow the phased manufacturing programme and list the components that manufacturers are allowed to import and mandate the ones that are to be made locally.
Email queries sent to the ministry of heavy industries and the testing agencies on 14 July remained unanswered.
Depleted stockpiles
China's clampdown on rare earth magnets has thrown the Indian auto industry into a quagmire. Indian importers of rare earth magnets had rushed to buy the commodity at a premium, ahead of the Chinese curb on exports introduced in April, helping cushion the blow to the industry, Mint reported earlier. With those stockpiles almost depleted and no prospects of fresh magnet imports, Indian automakers are considering importing fully assembled components.
Rare earth magnets, such as neodymium-iron-boron (NdFeB) magnets, are used in advanced automotive applications and are essential in components such as traction motors for electric vehicles.
The Society of Indian Automobile Manufacturers had written to the ministry on 27 June, asking for a temporary relaxation of localisation norms in various government schemes like the PLI-Auto scheme and PM E-DRIVE, Mint reported on 7 July. The industry had explained the issue to the government and its testing agencies and sought relaxation of localisation norms under the two schemes, a second person aware of the development said.
The industry's concern is that importing such assemblies will lower the localisation in zero-emission vehicles made by Indian manufacturers and push them out of the PLI-Auto scheme, the first official said. The scheme's focus on using locally manufactured parts to make zero-emission vehicles is to counter the dependence on the Chinese manufacturing ecosystem for critical components of EVs.
The government plans to dole out about ₹2,000 crore in PLI-Auto disbursals in FY26, heavy industries minister HD Kumaraswamy said in an email interview to Mint, following disbursal of ₹332 crore in FY25.
Under the PM E-DRIVE scheme, which has ₹10,900 crore to be doled out by FY26, automakers receive a reimbursement from the government for every electric two- and three-wheeler, ambulance, truck, and bus they sell at a discount.
Testing agencies are critical in implementing India's clean mobility schemes. Under both PM E-DRIVE and PLI-Auto, every manufacturer has to get its vehicles vetted by at least one of the four testing agencies for localisation criteria.
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