NEW DELHI: Even as India pushes to localize rare earth supply chains, the Centre has budgeted ₹140 crore in capital expenditure for the country’s only domestic manufacturer of rare earth magnets and rare earth oxides—IREL (India) Ltd—in the next fiscal year, a modest 1.4% increase from FY26.
The muted allocation for the state-run producer, outlined in Union budget documents, has sparked questions about whether India is under-investing in its only operational domestic supplier at a moment when shortages are hitting industries from automobiles to electronics.
Some, however, say policymakers are prioritizing incentives and corridors to draw in private investment, even though most private plans have yet to materialize.
The investment funds for IREL, which was set up 76 years ago under the aegis of the Department of Atomic Science, have remained range bound between ₹120 crore and ₹140 crore since fiscal year 2024, with spending falling to ₹107 crore in FY25.
The Centre does not directly provide budgetary support to IREL. Instead, the company mobilizes funds through internal and extra-budgetary resources (IEBR). Budget documents specify the IEBR amount that IREL is expected to deploy for new capital expenditure.
Queries emailed to IREL earlier on Monday remained unanswered till press time.
China's chokehold and the stakes
Domestic rare earth magnet production has drawn increased attention after China began restricting exports of such products, a supply chain it dominates. Sectors such as automobiles and electronics were among those that faced shortages of components containing rare earth magnets.
Rishabh Jain, fellow at Council on Energy, Environment and Water (CEEW), said that IREL produces rare earth oxides and is one of the few global entities outside China with commercial “mine-to-oxide” capabilities.
“However, unlike in the past where low demand drove exports, domestic demand for rare earth due to magnet production is expected to be higher than IREL's production capacity, forcing a shift from exports to domestic prioritization. The reduction in import duty for monazite sands would also aid in the short term,” he said. “Scaling up requires not just mining expansion, but significant investment in IREL's downstream separation facilities, as it remains the sole authorized processor of monazite."
Monazite is a mineral rich in rare earth elements.
There are also concerns about institutional capacity. Last year, questions were flagged about IREL operating without a full-time chairman and managing director between December 2024 and November 2025.
Private-sector push vs results
In the Union budget for FY27, announced on Sunday, finance minister Nirmala Sitharaman said the government will support the creation of four rare earth corridors in Odisha, Tamil Nadu, Kerala, and Andhra Pradesh to facilitate mining, research, manufacturing and processing of rare earths in India.
The announcement came three months after the government launched a ₹7,280 crore scheme to promote domestic manufacturing of rare earth magnets.
While companies such as JSW, Sona Comstar, Bharat Forge, Proterial, and Midwest Advanced Materials Private Ltd have expressed initial interest in participating in the scheme, none of their plans have materialized so far.
That leaves IREL as the only major domestic manufacturer of rare earth oxides and magnets as of now.
Poonam Upadhyay, director at Crisil Ratings, said the strategic emphasis has shifted from entity-specific expansion to building a broader, competitive ecosystem spanning mining, processing and downstream manufacturing.
“This is evident in the rare-earth permanent magnet incentive framework, which allocates capacity to multiple qualified beneficiaries through a competitive process. The budget reinforces this approach by materially stepping up allocations at the ministry of mines level,” she said.
“Revenue allocation has sharply increased to about ₹3,635 crore for fiscal 2027 from around ₹490 crore in the fiscal 2026 revised estimate. This signals an early-stage push into critical minerals, with a clear focus on rare earth elements, aligned with India's Atmanirbhar goals,” added Upadhyay.
What IREL can produce—and what holds it back
Originally called Indian Rare Earths Ltd, the firm was founded in 1950 under the administration of independent India’s first prime minister Jawaharlal Nehru to produce thorium to support India’s nuclear power programme. Over time, it diversified into other rare earth elements, including a recently inaugurated rare earth magnet plant at Vishakhapatnam.
The state-backed enterprise can currently produce about 400 tonnes of rare earth oxides a year, which can be used to make around 1,200 tonnes of magnets. IREL also holds a stockpile of about 500 tonnes of rare earth oxides, enough to support the manufacturing of around 1,500 tonnes of magnets.
Rare earth magnets are used in all vehicles, including electric (EVs) and internal combustion engine (ICE) vehicles. According to an August 2025 report by consultancy firm Primus Partners, each electric vehicle requires about 1-2 kg of rare earth magnets.
The firm noted that India consumed nearly 1,700 tonnes of rare earth magnets in 2022, and demand is expected to rise to 7,154 tonnes by 2030.
These estimates refer to neodymium-iron-boron (NdFeB) magnets, which contain dysprosium and are among the strongest and most widely used rare earth magnets.
IREL has told lawmakers that rare earth magnet manufacturing is expensive and requires careful handling to prevent environmental damage.
In December 2025, the parliamentary committee on public undertakings (COPU) asked IREL to expedite business operations related to expansion and joint ventures, urged it to collaborate with global companies in the rare earth value chain, and said the company should never let its guard down regarding environmental fallout from its operations.
IREL told COPU that due to the strategic nature of the minerals it mines, steps have been taken to avoid public consultations for all projects concerning national security and atomic energy to enable expeditious statutory clearances, including environmental approval, and early operationalisation of projects.
“The environmental impact of RE (rare earth) mining is primarily due to the complex and often toxic nature of the ore body including various radioactive and non-radioactive impurities which require extensive use of water and chemicals/alkalis/acids for extracting the material. In the Indian context, the resource of REE (rare earth elements) is occurring in association with radioactivity, making the extraction process long, complex and expensive,” IREL said in its reply to the government's recommendation on environmental degradation due to mining.
IREL also said it was taking all necessary environmental clearances from the ministry of environment, forests and climate change, using technology to make effluents less toxic, and adopting new machinery to reduce wastage and increase recovery.