Rare Earth Crunch Hits ECMS, Electronics Firms Seek Relief

Poonam Sharma
India’s ambitious initiative to build its local electronics manufacturing ecosystem under the ₹22,919 crore Electronics Component Manufacturing Scheme (ECMS) has hit a crucial stumbling block — an ongoing global shortage of rare earth minerals. At least ten firms that are part of the scheme have raised alarms with the Ministry of Electronics and Information Technology (MeitY), stating that ongoing disruption in the supply of these critical minerals could scuttle their first-year production goals.

At the heart of the problem are China’s new export restrictions, which have created shockwaves along international supply chains. Since April 4, Beijing has required special licenses to export seven rare earth elements and magnets that are linked to them — a strategic stranglehold upon industries ranging from electronics, electric cars, to renewable energy technologies. China now controls over 90% of the world’s rare earth processing capacity, and its actions have had ripple effects internationally.

Disruption in Production, But No Panic as Yet
Though companies have officially complained to MeitY, officials indicate the issue has not yet come to panic level in the industry. Companies worry that if the supply squeeze goes on for another six months, they may miss out on the levels of eligibility for government incentives under the ECMS.

The short-term effect is already seen. Where manufacturers were thinking of utilizing rare earths to produce components in India, now some are producing the finalized components and importing them directly instead. This workaround defeats the very purpose of ECMS — minimizing import dependence and localizing the electronics value chain.

Companies Seek Alternatives Due to Timing Disasters
Most of the participating companies are now competing to find new sources or look for technologies that use few rare earths. But as Ashok Chandak, President of the India Electronics and Semiconductor Association (IESA), said, the crisis could not have happened at a worse time. “The ECMS has been launched at a time when numerous bodies desire to increase capacity and make use of exports,” Chandak added. Supply shocks in rare earth magnets have struck the industry hard.

This feeling is echoed industry-wide. The ECMS, which comes into effect officially from FY26 and goes up to FY32, has a one-year gestation period with a view to enabling companies to develop capabilities. Yet, a large number of micro, small, and medium enterprises (MSMEs) are of the view that the time is insufficient to cope with global disruptions which they are presently experiencing. They are also requesting quicker disbursal of incentives to control cash flows and recovery of investments.

PCB Industry Most Harmed
One of the most affected sectors is the printed circuit board (PCB) segment — a core component of electronic manufacturing. KS Babu, Secretary of the IPCA, said that multi-layer PCBs and HDI boards have seen interest from applicants. But he added that India does not yet have domestic manufacturing of many key inputs like copper-clad laminates, and hence manufacturers are vulnerable to international price fluctuations.

Chinese vendors, Babu said, are taking advantage of the disruption by raising prices and attributing it to delays in shipments. This places Indian companies at a strategic disadvantage, exactly when the nation is trying to position itself as a reliable alternative to China for electronics manufacturing.

Government Response and Industry Outlook
On feedback from the industry, MeitY has consented to push back the deadline for applying for ECMS beyond July 31. Most small companies are still trying to finalize their technology partners, joint ventures, and raw material procurement channels. Although the government has not made any official announcement of relaxing production-linked incentive (PLI) limits, an unidentified Delhi-based printed circuit board (PCB) maker told ET that officials have assured flexibility on the verification and claims process during the first year informally.

Concurrently, the Ministry of Commerce and Industry has also recognized the problem at a broader level. In a reply to the Rajya Sabha, Minister of State Jitin Prasada affirmed that the export restrictions imposed by China have led to supply bottlenecks both in the auto and the electronics industries. No complaints of cost overruns or project delays have been formally received from industry centers such as Maharashtra, however, according to news agency PTI.

Can China Sustain the Ban?
Though the initial losses are steep, industry captains are optimistically optimistic. They contend that China itself does not have the wherewithal to keep the ban prolonged. “If the ban persists, even Chinese firms will start to bleed. It would put long-term pressure on their relationships with most countries,” Chandak said. This offers respite to Indian companies that the supply disruptions could ease in the months to come, maybe ahead of the ECMS going into full operational mode in FY26.

Strategic Takeaways
The rare earth shortage has highlighted a key strategic weakness in India’s electronics manufacturing plan. Although programs such as ECMS are well-meaning and potentially revolutionary, they are still subject to worldwide geopolitical and trade forces. The crisis also emphasizes the imperative for India to diversify its sources of raw materials, build indigenous strengths in the processing of rare earth, and promote R&D in substitute technologies that minimize the use of these strategic minerals.

In the near term, policy implementation flexibility, accelerated release of funds, and front-line diplomatic efforts on trade corridors will be important. In the longer term, India needs to deal with the rare earth industry as a strategic sector — similar to semiconductors or defense — and invest accordingly.

The path to electronics independence can have been momentarily obstructed, but by taking careful course correction measures, India can still make a comeback to become stronger and more robust in the supply chain of the world.