Reminding that rare earths—though representing a tiny slice of India’s import bill—are disproportionately critical for domestic industrial and economic ambitions, State Bank of India (SBI) has raised red flags over China’s recent export ban on rare earth elements and permanent magnets, a move that could severely disrupt India’s manufacturing sectors and financial system unless proactive steps are taken swiftly. The report underscores the urgency for India to build self-reliance in the critical minerals value chain, particularly with the recent launch of the national critical mineral mission (NCMM).
Titled “China’s Ban on Rare Earth and Permanent Magnets: Implications for India,” the SBI Research report highlights how deeply integrated rare earth elements have become with India’s modern economy, particularly in transport equipment, basic metals, construction, electronics, and machinery. The bank’s economists warn that both domestic production and exports in these sectors are at risk, as India remains heavily import-dependent on China for these critical materials.
China’s export ban should not be seen as a temporary supply glitch but as a strategic wake-up call for India, SBI says, adding, "The time for tactical policy responses has passed. What is needed now is a full-spectrum national strategy—from mining to manufacturing to financial hedging—to secure India's future in a rare earth-constrained world."
Rare earth elements, known for their unique physical, magnetic and luminescent properties, are indispensable for the manufacture of electric vehicles, wind turbines, electronics, defence equipment, and medical devices. Their economic importance has surged in the wake of the global green and digital transitions. According to the SBI report, rare earth minerals have “small share in overall cost structure but extreme criticality in production,” making them highly vulnerable to geopolitical disruptions.
India imported US$31.9mn (million) worth of rare earth compounds in FY24-25, part of a four-year trend averaging US$33mn annually. However, what is more concerning is the dramatic surge in rare earth magnet imports, which reached US$291mn in FY24-25, the highest in the last four years and well above the average of US$249mn. These magnets are heavily used in the automotive, electrical, and machinery sectors—industries vital to India’s economic growth and job creation.
The report estimates that India has close to 100% import dependency on key critical minerals, many of which are now under export controls by China. A sector-by-sector vulnerability analysis presented in the report reveals that India’s transport equipment, basic metals, machinery, electronics, and construction industries have the highest exposure to these inputs. The risk is not just industrial—it extends to the financial system as well.
SBI researchers warn that rare earth supply shocks could affect the banking sector by elongating working capital cycles, increasing volatility in credit demand, and pushing stress into both upstream and downstream borrowers.
Under aggravated scenarios, banks could also face indirect risks through non-banking financial companies (NBFCs), especially those funding trade and export-linked enterprises. “The latest RBI Financial Stability Report already acknowledges the vulnerabilities posed by external spillovers and geopolitical hostilities,” the report notes, tying the rare earth crisis to broader financial stability.
In response, the Indian government has launched the NCMM in 2025 with a fund allocation of Rs18,000 crore for 2025–2031. The mission seeks to establish a framework for self-reliance in the critical minerals sector by supporting both public sector undertakings (PSUs) and private companies in exploration, mining, and value-added processing. Strategic investments are also planned in mineral-rich countries to secure upstream resources.
The SBI report views the NCMM as a timely and necessary step but stresses that execution and state-level involvement will be key. For instance, Odisha has taken the lead by classifying rare earth-based products as a priority sector in its industrial policy resolution 2022. The state has also approved an Rs8,000 crore titanium manufacturing facility in Ganjam which is expected to boost high-tech and green manufacturing.
Further, the Union ministry of mines has identified 30 critical minerals essential for India's strategic needs—including many of the 17 rare earth elements targeted by China’s export restrictions. These include neodymium, dysprosium, samarium, terbium and praseodymium, among others—all vital for manufacturing advanced permanent magnets.
Another important insight from the SBI Research is the need for banks to develop strategic focus areas and internal risk management frameworks to assess exposure to critical minerals. “Critical minerals are an important business opportunity for banks that requires exclusive policy focus and strategic direction,” the report notes, hinting at the rising need for banks to finance domestic value chains and hedging mechanisms.
Interestingly, while India's rare earth consumption is increasing, domestic production remains negligible. In fact, the report shows how China dominates the supply of rare earth compounds and magnets, with India’s import dependence heavily skewed toward it. This makes India especially vulnerable in a geopolitical context where mineral nationalism and strategic embargoes are becoming increasingly common.
Price volatility is another layer of complexity. The SBI analysis highlights sharp swings in prices of key rare earth minerals, like neodymium and dysprosium, which can disrupt planning and raise costs for manufacturers and exporters. Without stable long-term supply agreements or strategic reserves, industries are at the mercy of international markets dominated by China, the report says.
India is not alone in facing this crisis. Countries like the US, Japan and members of the EU have already classified rare earths as strategic materials and are investing heavily in alternative supply chains. SBI's research implies that India must do the same, not just to protect its industrial growth, but also to insulate its financial system from sectoral shocks.
