India faces rare earth magnet challenge amid global supply chain disruptions: finance ministry
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New Delhi — The Finance Ministry, in its July 2025 economic report, acknowledged for the first time the growing disruption in global supply chains for rare earths, magnets, and semiconductors, warning that India must navigate these shifts with urgency and precision.
“India has its task cut out,” the ministry stated, referring to the “momentous shifts in global supply chains in the areas of semiconductor chips, rare earths and magnets.”
This official comment comes at a time when a global shortage of rare earth elements has intensified following China’s export ban.
The ripple effect is already being felt in India's automobile sector, where some manufacturers have flagged potential production slowdowns due to limited access to critical components.
The Finance Ministry noted that while India’s broader economic outlook remains “stable,” the country’s medium-term growth trajectory will depend on how effectively it integrates into strategic, high-value global networks - especially in sectors heavily impacted by the current realignments.
The report outlined that India’s economic outlook for FY26 appears steady, yet is clouded by external vulnerabilities, including a slowdown in global demand, sluggish exports, and tepid private investment. “The economy is in a ‘steady as she goes’ mode,” it said, pointing to resilience in domestic consumption and agriculture as bright spots in an otherwise uncertain global context.
Among the concerns highlighted, the U.S. economy’s 0.5% contraction in Q1 2025 raised alarms over diminished export opportunities. Ongoing tariff unpredictability in the U.S. is another factor that could weigh on India’s trade performance.
Domestically, private sector investment remains subdued and credit growth has yet to gain strong momentum. The report also warned of a deflationary trend in wholesale prices, which could result in nominal GDP appearing weaker than actual economic growth.
Still, there are strong fundamentals supporting the Indian economy. Tax revenues continue to grow at a healthy pace despite recent rate cuts, and capital expenditure by both the Union and state governments remains robust. A strong monsoon season has further boosted agricultural output and rural demand, aiding economic resilience.
On the inflation front, the report noted that core inflation remains low, with headline inflation tracking below the Reserve Bank of India’s (RBI) 4% target. The RBI projects Q2 FY26 inflation at 3.4%, with expectations for the full fiscal year holding steady below the 3.7% forecast.
Amid this backdrop, NLC India’s Chairman and Managing Director confirmed the company is exploring options to source rare earth materials from international partners, underscoring the urgency of securing alternative supply chains.
