Rare earth shortage bigger problem for auto sector than earlier thought: CII President

The shortage of rare earth materials due to China’s export ban of these materials is a bigger concern for the automobile sector in India than was earlier thought, with some companies already indicating they would be cutting production, according to Confederation of Indian Industry (CII) President Rajiv Memani.

One step the government can take to alleviate this in the medium term, he said, was to sell its stake in some listed public sector companies and use those funds to invest in establishing independence in supply chains for rare earths and other critical elements. 

“Definitely auto is a big concern, not only on EVs but wider,” Mr. Memani said at a press conference on July 3, in response to a question on the rare earths issue. “In auto, I would say the concern is more serious than what’s come out till now. In fact, some of the most conservative companies have begun to give some guidance on lowering their production levels going forward.” 

China had, on April 4, restricted the export of rare earth magnets and related materials in retaliation to tariffs imposed by the U.S. on Chinese imports. Rare earth magnets are crucial materials in the motors of electric vehicles and are used in internal combustion engine vehicles as well. 

“Personally, I feel it is a good wakeup call for India,” Mr. Memani added. “Not only for rare earths, but for all those areas, whether it is APIs, penicillin or other products, where we have critical supplies coming from outside, we should have a strategy for that. Having such a weakness can impact at critical junctures.” 

The president of the industry association further said that the government currently accounts for 10% of the market capitalisation in India’s stock markets, which works out to almost ₹50 lakh crore. A portion of this amount can be put to a much more productive use, he explained.

Mr. Memani conceded that it is important for the government to hold stocks in strategic or sensitive companies, but added that, were the government to sell even 10% of its holdings, it would gain access to a substantial sum. “If the government can monetise this and use this to much better effect, either to reduce debt but more importantly to create a sovereign wealth fund that is focussed on MSMEs, focussed on addressing the critical issues the economy is facing, such as rare earths and critical supply independence.”

During his presentation on the major issues facing the Indian economy, Mr. Memani said that the single biggest factor holding back the private sector from investing further in the country was the lack of skilled labour.

Overall, CII expects the economy to grow at 6.4-6.7% in the current financial year 2025-26.