China’s curbs on rare earth exports across several countries including India have impacted industrial sectors including transport equipment and electronics that rely significantly on these critical minerals.
As the global tussle on this continues, a recent report from the State Bank of India (SBI) suggests that these restrictions can impact the financial exposure of banks to the sectors dependent on these rare earths. The analysis also indicates that there will be an impact on domestic production and exports.
“Our analysis indicates sectors impacted by ban are – Transport Equipment, Basic Metals, Machinery, Construction and Electrical & Electronics,” the SBI report stated. It further mentioned that rare earth being a critical mineral, disruption in supply can impact the financial exposure of banks to these sectors.
“However, it should be kept in mind vulnerability is also a function of available inventory of rare earth and disruption is not immediate uniformly across sectors,” it added.
In addition to these suggestions, the report also noted that the possible transmission mechanism to banks due to rare earth supply shock under aggravated scenario may include:
• Elongation of working capital cycle due to accumulation of semi-processed inventory, idle capacity etc.
• Volatility in demand due to output inoperability
• Likely emergence of stress in both upstream and downstream sectors
• Interlinkages from NBFC sector to banking sector
• Export / trade uncertainties for committed yet unfulfilled obligations; both funds as also non-funds based (due to sudden restrictions).
Earlier this year, the Centre launched the National Critical Mineral Mission to establish a robust framework for self-reliance in the critical mineral sector with Rs 18000 crore allocated for the period 2025-31. Additionally, the active participation of state governments in encouraging rare earth exploration and processing can contribute to regional economic development and self sufficiency in critical mineral value chains.
Analysis of India’s trade data shows that the country’s total imports of rare earth elements and related compounds stands around around $33 million annually over the past four years, with imports in FY25 being at $31.9 million. In terms of magnets, the imports have been much higher, averaging $249 million during the same period and going up to $291 million in FY25. As per the study, the direct absorption of rare earths is concentrated in six core sectors, notably basic metals and electrical and optical equipment.
For magnets, the usage is primarily in the automotive, electrical and electronics and machinery sectors. The report stated, “a granular, sector-by-sector analysis—factoring in both direct rare earth inputs and the embodied rare earth content in magnets (assumed at 33% by weight)—was undertaken from two angles: final demand and export demand.” The rare earth footprint, measured in kilograms, serves as an approximate indicator of how vulnerable sectoral output may be to disruptions in the supply of rare earths or related value-added materials, it added.
