Union Budget 2026: Govt to support rare earth corridors in South India

In a major boost to India's electric vehicle and advanced automotive manufacturing ecosystem, Finance Minister Nirmala Sitharaman on Saturday announced the creation of dedicated rare earth corridors across four mineral-rich states as part of the Union Budget 2026-27.

- Rs 7,280-crore REPM manufacturing scheme approved by the Union Cabinet in 2025
- Aims to establish 6,000 metric tonnes per annum (MTPA) of rare earth magnet manufacturing capacity in India
- China dominates the global rare earth supply chain which includes nearly 70 percent of global mining

The proposed corridors will be developed in Odisha, Kerala, Andhra Pradesh and Tamil Nadu, and will focus on the entire rare earth value chain, from mining and processing to research and downstream manufacturing. These are  sectors that are increasingly critical for the automotive industry.

"A scheme for rare earth permanent magnets (REPM) was launched in November 2025. We now propose to support mineral-rich states to establish dedicated rare earth corridors to promote mining, processing, research and manufacturing," Sitharaman said while presenting the Budget.

Rare earth permanent magnets are a key input for electric vehicle traction motors, particularly permanent magnet synchronous motors (PMSMs), which are widely used in EVs for their high efficiency, strong torque delivery and durability.

Beyond traction motors, rare earth magnets are also used across a wide range of automotive applications, including electric power steering (EPS), HVAC systems, regenerative braking systems, sensors, infotainment and audio components, making them essential for EVs, hybrids and even modern ICE vehicles.

The corridor proposal builds on the Rs 7,280-crore REPM manufacturing scheme approved by the Union Cabinet in November 2025. The scheme aims to establish 6,000 metric tonnes per annum (MTPA) of integrated rare earth magnet manufacturing capacity in India, covering the full value chain from rare earth oxides to finished sintered magnets.

The scheme will run for seven years, including a two-year gestation period for plant setup followed by five years of sales-linked incentives.

Currently, India meets most of its rare earth magnet requirement through imports, largely from China, even as domestic demand is projected to double by 2030 compared to 2025 levels, driven primarily by EV adoption, renewable energy expansion and industrial electrification.

China dominates the global rare earth supply chain, accounting for nearly 70 percent of global mining and close to 90 percent of processing capacity. In April 2025, Beijing imposed export curbs on seven rare earth elements including Dysprosium, Terbium and Samarium as well as finished magnets such as Neodymium-Iron-Boron (NdFeB) magnets, citing end-use certification requirements. The move disrupted global auto and EV supply chains and highlighted India's vulnerability.

Commenting on the Budget announcement, Saket Mehra, Partner Auto and EV, Grant Thornton Bharat, said "The Finance Minister's announcement to develop rare earth corridors across key states reinforces the government's intent to reduce import dependence for components that are critical to the EV ecosystem. This will accelerate the rollout of the Rs 7,280-crore REPM scheme and help build end-to-end domestic capabilities, from mining to magnet manufacturing," Mehra said.

With EV penetration rising rapidly and OEMs increasingly looking to localise critical components, the proposed rare earth corridors are expected to play a crucial role in securing motor supply chains, stabilising costs and improving long-term competitiveness of India's EV and auto component industry. The move also aligns with India's ambitions to emerge as a global hub for EV manufacturing.