Mint Explainer | India's EV localisation drive: See how the rare earth magnet shortage is reshaping policy
The government recently gave in to automakers’ demands and allowed certain electric vehicles makers to import a crucial component. The move raises questions over whether this could undermine the country’s push to build a strong domestic EV manufacturing base.
The Union government has over the past decade introduced multiple policy initiatives to support the manufacturing and adoption of electric vehicles. While the names of the schemes, their targets, and budgetary allocations have changed, one thing has remained constant—the presence of a phased manufacturing programme, or PMP.
The PMP is meant to get EV manufacturers to use more locally made parts and gradually phase out imported components. The programme’s localisation criteria lists auto components that EV makers are allowed to import.
Automakers have to abide by this criteria to avail subsidies under the PM E-Drive (PM Electric Drive Revolution in Innovative Vehicle Enhancement) scheme, which was introduced a year ago to succeed the second edition of the FAME (Faster Adoption and Manufacturing of [Hybrid and] Electric Vehicles) scheme.
The government has blacklisted and even pursued legal action against companies found claiming incentives under these schemes while not adhering to the PMP criteria.
But in a notice on 30 September, the government said makers of e-trucks and e-buses could import traction motor sub-assemblies—the main motor system powering a vehicle’s movement—without losing benefits under the ₹10,900-crore PM E-Drive scheme. Why? Because of the rare earth magnet crisis.
Mint explains why the government amended its localisation criteria for specific EV makers as it prepares to address the rare earth magnet shortage.
What’s PMP’s purpose?
India’s EV manufacturing sector is heavily dependent on Chinese technology. To enhance the capabilities of Indian EV makers, the government uses tools such as the phased manufacturing programme.
PMP is integral to the PM E-Drive scheme, under which the government aims to encourage EV adoption by reducing the upfront cost for consumers. Under the scheme, electric vehicle manufacturers can sell at a discount and claim reimbursement from the government.
But a core purpose of the PM E-Drive scheme is also to develop a robust indigenous manufacturing ecosystem for electric vehicles.
By defining auto parts that have to be sourced locally, the programme ensures that only those vehicles and EV charging units that adhere to its criteria can claim incentives under the PM E-Drive scheme.
How many components are listed under PMP?
PMPs have been used since 2015, when India unveiled its first FAME scheme. Under the PM E-Drive scheme, the PMP for electric vehicles lists 18 components that automakers can import.
For instance, makers of e-buses and electric three-wheelers were barred from importing body panels from 1 April 2019, and makers of electric two-wheelers from 1 April 2021.
The PMP for electric two- and three-wheelers mentions eight critical components, including battery packs and traction motors, that need to be assembled or manufactured locally. The phased manufacturing programme uses the terms ‘assembly’ and ‘manufacturing’ interchangeably.
For components not mentioned in the PMP, the government maintains strict import controls, not allowing automakers to source child components of each auto part from a single source.
Child components refers to spare parts or raw material used to make an auto component. For instance, the material used to make a motor are its child components.
How did the rare earth magnet crisis impact India’s EV localisation drive?
In April, the Chinese government stopped exporting heavy rare earth magnets, which are crucial not only for making EV motors but also in strategic sectors such as defence, electronics, and renewable energy. China dominates the global supply of rare earth magnets.
EV makers rushed to the government for relief, stating that they were now forced to import traction motors laden with rare earth magnets. Under existing rules, importing magnet-fitted traction motor sub-assemblies would reduce the localisation of EV parts, rendering auto manufacturers unable to claim benefits under the PM E-Drive scheme, they argued.
On 30 September, the Union government notified temporary relief for e-truck makers, allowing them to import traction motor sub-assemblies without losing benefits under the scheme. However, it stated that the assembly of traction motors with parts such as magnets and cables have to be localised from 1 March 2026 for trucks weighing between 3.5 and 12 tonnes (N2 category trucks).
So how flexible is the government’s localisation control for EV parts?
The PMP is designed to be a localisation knob that can be twisted to suit prevailing conditions. Think of it like a screw that will be tightened in the years to come as the auto industry widens the scope of component manufacturing. As manufacturing of crucial EV components reaches scale, those components will stop appearing on the PMP list and the government will make it mandatory for EV makers to source these parts locally.
But in times of crisis, such as because of the rare earth magnet shortage, the government has reserved powers to amend the PMP. The government has mostly tightened the PMP criteria under each new scheme.
“The phased manufacturing programme is designed as a dynamic tool rather than a static checklist. Its flexibility allows policymakers to recalibrate the localisation roadmap in line with the fast-evolving EV manufacturing ecosystem," said Randheer Singh, former director of electric mobility at NITI Aayog, the government’s policymaking think tank.
“For instance, as technology advances or new value-chain gaps emerge, the programme can be adjusted to ensure India remains aligned with both global standards and domestic industrial capacity," Singh said.
“Such course corrections have built industry confidence and attracted investment. Going forward, however, keeping timelines firm and aiming to fast-track select areas of high value like battery cells, power electronics, and chargers will be essential to make India’s EV ecosystem resilient."
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