At the recently-concluded India AI Impact Summit in New Delhi, top global tech CEOs put the spotlight on AI models, chips and data centres, the machinery behind ChatGPT, Gemini, DeepSeek and Claude, typically powered by Nvidia GPUs. Looming in the background of these presentations was the hard reality that no one missed: All the talk about AI makes no sense, unless it has a physical system that stores data, moves parts with microscopic precision and cools power-hungry servers. That is where ‘rare earth’ elements (REEs) enter the scene, mainly through permanent magnets, which retain magnetism without continuous external power.
China has been dominating the industry and accounts for about 60 per cent of global mine production and nearly 90 per cent of refined production and rare earth magnet output. Countries across the world are thus dependent on China and have to deal with shortages when Beijing tweaks its export control policies. That dominance got highlighted in 2024 when China tightened exports during a trade dispute, hitting Indian carmakers and electronics firms and forcing the electric vehicle industry to explore alternatives to rare earth magnets altogether. The disruption was temporary, but the lesson lingered – that, without a sovereign rare earths strategy, entire industries remain vulnerable.
India is not alone in scrambling for alternatives. Other countries, too, have launched similar efforts to loosen China’s grip. Demand for such magnets is expected to double by 2030. And, as countries race towards acquiring cutting-edge AI solutions, the demand will only multiply.
Indispensable commodity
Here’s the thing: AI and much of our industry depend heavily on hardware made with rare earths, a group of 17 such elements. These materials support everything from data storage to processors running complex learning systems. For instance, dysprosium and terbium boost magnet strength in AI-powered robots, and yttrium aids superconductors that enhance computing speed and efficiency. Neodymium magnets inside the high-efficiency motors keep data centres running; power fans, pumps and compressors move air and chilled coolant with precision. As AI is increasingly embedded in robots and automation, this dependence on magnets only grows. The same rare earth magnets sit inside EV motors, wind turbines, industrial robots, radar and guidance components, and what have you.
REEs may not be visible to consumers like gold or silver, but they are embedded deep inside modern machinery. The oddity is economic: globally, rare earth output is large in tonnage at 390,000 tonnes (USGS), yet small in headline market value at less than $7 billion (industry estimates), because the real leverage is strategic, not size. Production is heavily concentrated. China dominates rare earth mining. But its stronger position lies in processing: Various estimates put China’s share of global separation/refining capacity at 90 per cent, which is why it sits at the choke point between ore and magnets. When export controls were tightened by the country last year, it showed how fast supply chains can choke, sending automobile companies scrambling for supplies. In a way, China weaponised the rare earths business.
That is one of the many reasons countries are building mine-to-magnet capacity at home using stakes, funding and offtakes; also, why India (the world’s third-largest reserves of rare earths at 6.9 million tonnes) is pushing a critical minerals mission to avoid staying only a buyer in someone else’s supply system. In her recent budget, Finance Minister Nirmala Sitharaman took cognisance of the reality and announced dedicated corridors for the minerals in four states – Tamil Nadu, Kerala, Odisha and Andhra Pradesh – to reduce India’s dependence on China for rare earths. The corridors will promote mining, processing, research and manufacturing. Earlier, a scheme for rare-earth permanent magnets was launched in November 2025.
Deal with Brazil
India has also sealed a deal with Brazil on critical minerals and rare earths during the recent visit of Brazilian President Luiz Inacio Lula da Lula, enhancing co-operation on crucial resources between two major countries of the global south as they seek to diversify their trading relationships. Brazil has the world’s second-largest reserves of rare earth minerals, used in a wide range of products, including smartphones, electric vehicles, solar panels and jet engines. The non-binding memorandum of understanding on rare earths establishes a framework for co-operation between the two countries, focusing on reciprocal investment, exploration, mining and artificial intelligence applications, among other issues.
Even as it rolls out a policy push to build domestic magnet-making capacity, the Modi government is pressing automakers to redesign electric motors and other parts without rare earth magnets. Till now, these magnets were critical to the automobile industry, especially electric vehicles. Some electric three-wheelers in India now use ferrite magnets, which is an older technology that does not rely on rare-earth. Ferrite magnets are heavier and less efficient, but the trade-off is acceptable, as it mitigates bigger risks.
Another technology being explored is synchronous motors – used by Tesla – that are magnet-less. This, however, is an expensive technology. A third option that can be looked at is experimenting with ways to extract better performance from light rare-earth magnets. Heavy rare-earths offer superior characteristics, but if one does adequate R&D, ways can be found to extract more from light magnets.
Global effort
It is not India alone that is making efforts in this direction. Governments around the world are no longer treating rare earths like a normal commodity. In the US, policy has turned openly strategic, including under Donald Trump, with support for domestic mines, stockpiles and overseas sourcing to reduce dependence on China. The race is also widening the map and the capital pool. Greenland is often cited for its large deposits. Kenya’s Mrima Hill, reportedly holding over 40 million tonnes of rare-earth-bearing ore resources, has made headlines. Ukraine features in the broader critical-minerals narrative. Hence, rare earths as a topic keep resurfacing in policy, boardrooms and top diplomatic circles.
However, there is some scepticism in India about how our government is going about achieving the goal and how realistic its ambitions are. In November 2025, India approved a Rs7,300 crore plan aimed at cutting its dependence on China in one of the most strategic corners of the global supply chain. Under the plan, selected manufacturers will receive capital and sales-linked incentives to produce 6,000 tonnes of permanent magnets a year within seven years. The aim is to meet rising domestic demand, which officials expect to double in five years.
However, developing a full rare-earths ecosystem is expensive, complex and time-consuming. By focusing on magnets instead, one of the most widely used rare-earth products, India aims to achieve self-reliance more quickly. But its success will depend on how fast the country can master technology, secure materials, and scale up.
Not by money alone
Industry experts warn that money alone will not be enough. India imports almost 90 per cent of its magnets and related materials from China, which in turn controls more than 90 per cent of global rare earth processing.
But that is one small part of the story. Neodymium is a type of rare earth element used to make powerful magnets. India lacks industrial expertise and has virtually no commercial-scale experience. In comparison, countries such as Japan, South Korea and Germany have spent years refining magnet-making technology.
“The plan is a good step in the right direction, but it’s only a start,” says Neha Mukherjee of Benchmark Mineral Intelligence, a consulting firm that deals with batteries and rare earth elements. “India will need strategic partnerships to import technology, skill up its workforce and then build its own capabilities.”
P.V. Sunder Raju, chief scientist, National Geophysical Research Institute (NGRI), echoes the concern. “It’s not possible to just give R7,300 crore and expect a product without a strong background in research and development,” he says.
India has several research centres, which can be put to the task. A facility, inaugurated in 2023 at the Bhabha Atomic Research Centre, and another plant, Midwest Advanced Materials (MAM) Private Limited, Hyderabad, backed by private partners and funded by the government, aim to produce 5,000 tonnes of magnets a year by 2030. But neither has yet reported output.
Raw materials
Firstly, there is also the question of raw materials. India holds the world’s third-largest rare earth reserves, about 8 per cent of the global total, largely in the sands of coastal states like Kerala, Tamil Nadu, Odisha, Andhra Pradesh, Maharashtra and Gujarat. Yet, it accounts for less than 1 per cent of global mining. Only one mine is operational in Andhra Pradesh and, until recently, most of its output was being exported to Japan under a bilateral deal. In June 2025, however, India asked the state miner, India Rare Earths Limited, to suspend these exports to safeguard supplies for domestic needs.
Most of India’s rare-earth reserves are found in sands along its coast. To be fair, India is actively working to expand mining and processing operations. The budgetary decision was a step in that direction. The government has set up the National Critical Mineral Mission (NCMM) under which it pledged to maintain stockpiles and keep its supply chain resilient.
But even if it does manage to tap into its own rare earth reserves, it has only some of the elements needed to make magnets. India has surpluses of lighter rare earths, such as neodymium, but lacks extractable quantities of heavier elements like dysprosium and terbium, which are critical for many high-performance magnets. That raises the question: even if magnets are made in India, will the raw materials still come from China?
There are also concerns about the scale of this operation. India already consumes an estimated 7,000 tonnes of magnets a year. Producing 6,000 tonnes by the early 2030s may still leave the country short and exposed, as demand continues to accelerate.
Scaling up capacity
“If we do not scale capacity, the problem doesn’t get solved. We’ll still be dependent on China – and China will scale,” an expert explains. Experts also point out that another challenge will be to price domestically made magnets in a way that they don’t get undercut by imports. Chinese magnets are cheap and, unless Indian-made alternatives are competitively priced, imports could continue to dominate. The solution, some argue, may lie in incentives not just for manufacturers but for buyers as well.
Despite the challenges, the introduction of the scheme is a recognition of India’s ambition to bolster its own rare earth ecosystem, and that’s worthwhile. It is certainly better than not having taken the step at all.
Another major step would be joining the US-led FORGE (Forum on Resource Geo-strategic Engagement, a collaborative effort launched recently as the opening salvo of the Trump administration’s 2026 critical minerals agenda. The Trump administration has positioned FORGE as a successor to the Minerals Security Partnership, launched in 2022 – but with sharper teeth and a commitment to speed. FORGE is not envisioned as a traditional multi-lateral co-ordination forum. Instead, it’s designed as a pluri-lateral coalition, creating a preferential trade-and-investment zone for critical minerals with coordinated price floors to counter adversarial market manipulation.
“Reference prices for critical minerals at each stage of production will be maintained through ‘adjustable tariffs to uphold pricing integrity’,” said US Vice President J.D. Vance. The objective of this approach is to create stable investment conditions for mining and processing projects that often require decades to deliver returns. If successful, it will help protect projects from the predatory pricing that hollowed out Western critical minerals production in previous decades.
Unclear framework
Exactly which countries will ultimately participate in FORGE remains unclear. The US has already worked out 21 bilateral framework deals in five months and claims that 17 more countries have completed negotiations.
FORGE will complement an earlier effort between the US and nine partners, known as ‘Pax Silica’. While Pax Silica centres on safeguarding AI-related supply chains, FORGE is designed as a broader platform to coordinate critical mineral policy, pricing and project development. India has officially joined Pax Silica, marking a significant step in international economic co-operation. This partnership aims to enhance collaboration in critical minerals and AI.
The Pax Silica alliance, launched in December 2025, aims to secure global AI and semiconductor supply chains while reducing reliance on non-aligned nations. By joining this coalition, India adds its vast talent pool and strategic location, enhancing the alliance’s capacity to shape the future of economic and technological frameworks. The Pax Silica declaration adopted in New Delhi recently emphasises that economic value and growth will emerge from all levels of the global AI supply chain, driving demand for energy, critical minerals, and new markets. The member nations, which include Australia, Japan and the UK, are committed to fostering deeper economic and technological co-operation.
All that may sound fine. But the fact remains that, while rare-earth deposits exist across the world and can be jointly exploited, it is China that dominates the chain with 44 million tonnes of REE reserves (48 per cent of global exploitable reserves) and 69.2 per cent of global output. The US, by contrast, has 1.9 million tonnes. What also sets China apart is not just the quantity of the reserves but four decades of deliberate industrial strategy, giving it an advantage others missed.
Cold War legacy
The strategic value of REEs emerged during the ‘Cold War’ when US military research in the 1960s developed samarium-cobalt magnets for radar systems and yttrium-aluminium-garnet lasers for missile guidance. While the US pioneered early technology, China built the supply chain at a much lower price.
“The Middle East has oil,” Deng Xiaoping had famously said; “China has rare earths”. From the 1980s, China directed state subsidies, relaxed environmental regulations and put humongous investments into extraction, separation and magnet-making technologies. Between 1990 and 2000, China produced 73,000 tonnes of REEs and expanded output by 450 per cent, as other countries curtailed their own production by 60 per cent due to cost and environmental concerns. By 2009, China controlled 98 per cent of global mine production; by 2010, some 97 per cent of global supply. Currently, it dominates 60 per cent of mining and over 90 per cent of supply.
To complicate things further, heavy REEs, which are more difficult to extract and far less abundant, are concentrated almost exclusively in China – an unparalleled leverage. The first major weaponisation of REE by China occurred in 2010, when it halted REE exports to Japan after the Senkaku maritime incident. Prices for several elements skyrocketed by up to 500 per cent, forcing Tokyo to recalibrate its entire supply chain strategy, a turning point that fundamentally reshaped Japan’s industrial policy.
A dilemma
The dilemma for India is that it cannot afford to be left behind in the race for rare earths and, at the same time, be blind to China’s stellar progress under the assumption that safety lies in numbers. Even if India joins FORGE, there is no guarantee that the US will not extract its pound of flesh.
The deal on rare earths appears to be part of a broader strategy from both India and Brazil to hedge their bets and become more strategically autonomous from China and the US through diversification. Brazil has been pursuing that strategy for years, which is why its leader, Luiz Inacio Lula da Silva, was able to stand up to President Donald Trump last year when the US leader imposed a 50 per cent tariff on Brazilian exports to the country over the trial of his ally, former President Jair Bolsonaro. The US later removed most tariffs on Brazil and the sanctions imposed on the judge who was overseeing the case. After the confrontation with the US, Brazil germinated the idea of putting rare earths and critical minerals on the bargaining table. It began to reposition its understanding of the importance of these elements beyond their commercial dimension, recognising their geopolitical relevance.
Lula is expected to visit his counterpart in Washington, D.C., in the coming months – a kind of pilot before negotiating with a country with which Brazil has an asymmetrical relationship.
Maybe there is a larger lesson in this for India.