Rare earth shortage hits electronic component companies

Time of India

2 days ago

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Uncertainty over rare earth mineral supply has led some applicants under the Electronics Component Manufacturing Scheme ECMS ) to warn the government that they may miss incentive-linked targets for the first year, if shortages persist for another six months.While applications under the scheme have surged past 110 now, at least 10 firms have sounded out worries at a time when the industry is keen on expanding its production and export footprint, officials at the Ministry of Electronics and Information Technology (MeitY), and industry executives told ET.For certain components, some firms plan to import, rather than make them locally, a person aware of the development said."Companies have expressed concern, but within the sector, it isn't an alarming outcry. If there is a component that uses rare earth, instead of importing that rare earth and making that component in India, they will simply import that component," the person said."There are other options like alternate sources of supply, or alternate technologies that don't use rare earths." The timing of the mineral scarcity due to curbs placed by China has been a challenge."The ECMS has been unveiled at a time when many entities want to scale up and take advantage of exports," said Ashok Chandak, president of the India Electronics and Semiconductor Association (IESA)."Beyond the traditional industry base, many Indian companies are diversifying into component manufacturing. But the industry has been particularly impacted by the supply shocks in rare earth magnets," he said.The ₹22,919 crore scheme aims to create a strong domestic manufacturing ecosystem for a range of components that are fundamental building blocks in nearly all modern electronic devices. These include bare components such as Multi-layer Printed Circuit Board (PCB) and Li-ion cells for digital applications, passive components like resistors, capacitors, and inductors, as well as display and camera module sub-assemblies.ECMS was opened for applications in May, a month after China imposed strict export controls and licensing requirements for rare earths, of which it controls over 90% of the global processing capacity and the largest reserves.Officials said PCBs have found key interest from applicants. "The scheme has seen strong interest from the PCB industry since this is the first time we have gotten some mileage. It addresses not only multi-layer, but also high-density interconnect boards. But given what is going on right now (globally), it is very difficult to hit the targets. The government has promised all support," said KS Babu, secretary, Indian Printed Circuit Association (IPCA).He also highlighted that the scheme does not address the complete absence of local production of essential raw materials like copper clad laminates, which are currently imported entirely from China. "Chinese suppliers are now taking advantage by squeezing prices, citing problems with shipments," Babu said.Set to be implemented over six years from FY26 through FY32, the scheme has a one-year gestation period for FY26 in case of turnover-linked incentives."It's only natural that MSMEs who are arranging these large sums for investment want to receive it as soon as possible. Informally, the government has assured it will be lenient during final verification and claim approval once ECMS starts by making the process to claim incentives," said a top Delhi-based PCB manufacturer.The Centre will be extending the application window for the scheme beyond the initial three-month period, which is set to end on 31 July, MeitY sources confirmed on Thursday. The decision was taken after industry bodies had asked for the same. "Many of the smaller companies who are interested, have to establish channels for sourcing materials, set up joint ventures, and secure technology," Babu said.Industry insiders are also hopeful of a resolution in the coming months. "China also can't afford to continue an export ban for long, since their companies will begin bleeding and it will place a long term strain on their relations with many countries," Chandak stressed.