India Cuts Taxes to Build Rare‑Earth Processing Capacity and Curb China’s Dominance

The Indian government used its annual budget to introduce targeted tax relief aimed at making downstream rare‑earth activities — separating, refining and magnet assembly — more commercially viable in India rather than abroad. The move is part of a broader strategic industrial pivot: capital expenditure for the coming year was raised to about 12.2 trillion rupees and an earlier sector allocation of roughly 73 billion rupees has been supplemented by policy measures to concentrate rare‑earth processing in dedicated corridors across four states. In practice, the fiscal change is designed to shorten supply chains that now centre processing in a dominant foreign processor and to convert foreign capital into localized mid‑stream capacity. Near‑term market effects are likely to include feasibility studies, expressions of commercial interest and early capex flows rather than immediate large‑scale production. Complementary measures announced elsewhere in the budget — including device and mid‑stream semiconductor support (a semiconductor mission funded at roughly $436 million) and long‑duration tax holidays for eligible foreign cloud firms — signal a willingness to use performance‑linked incentives and long incentive windows to attract strategic investors. Translating interest into operating plants will require timely regulatory clarity on eligibility, performance milestones and links to export or procurement support, plus agreements with state governments on land, permitting and reliable grid power. Practical bottlenecks — access to specialized reagents and equipment, industrial water and power, environmental permits and waste‑management systems — will determine which projects proceed and how quickly they can scale. Human capital is a clear constraint: downstream refining and magnet assembly need factory disciplines, cleanroom practices and sustained, multi‑year training programmes. Policymakers must weigh the trade‑off between long incentive windows that draw headline investments and the fiscal risk of windfalls for projects that might have proceeded without support. If paired with clear rules, fast approvals, targeted procurement or export linkages and workforce and environmental investments, the package could seed magnet and catalyst manufacturing, create jobs and reduce strategic exposure. Conversely, scattered execution, slow state‑level coordination or short‑lived concessions could shift capital to jurisdictions seen as more execution‑friendly, leaving India with fiscal costs and limited industrial gain.