How Chinese magnets are crushing Indian motors
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In today’s edition of The Daily Brief:
China’s vice grip on India’s auto sector
Selling building rights in Bengaluru just became easier
China’s vice grip on India’s auto sector
At The Daily Brief, we’ve often talked about how China dominates the world’s rare earth elements — and how it’s using these as a point of leverage over the entire world. To us, that’s a critical vulnerability for any country that crosses paths with China.
Our biggest worry revolves around what’s called “weaponised interdependence”.
See, modern economies run on the back of highly complex supply chains that wind all over the Earth. Not too long ago, this felt like a great thing: it ensured that every country focused on perfecting a few things, and then sold it for cheap all over the world. It was a recipe for universal abundance.
But there was a dark side to this: some countries have learnt to corner parts of these supply chains — and that gives them inordinate amounts of power. If they cut an economy off something critical, suddenly, they can bring large parts of that economy to its knees.
Earlier, we talked about this in abstract terms. But now, we’re starting to see early signs of what that looks like in practice — through the plight of India’s auto sector.
How China is pressing its dominance
China absolutely dominates the world’s rare earth elements. As we’ve written before:
“Right now, China mines around 70% of the world’s rare earths. It processes 85-90% of the world’s rare earths — giving it a veritable monopoly over turning these materials into something useful. And it makes the products that use these rare earths. For instance, China produces over 90% of the world’s rare earth magnets.”
For all intents and purposes, it has a complete monopoly here. Last year, for instance, we imported 540 tonnes of magnets — 80% of those came from China.
At some point, China realised that it could turn this dominance into a pain point for any country it didn’t like. And lately, it has started pressing that advantage, by choking the world of its rare earth supply. Early this April, it placed serious curbs on the export of seven key rare earth elements, and any magnets that were made using these elements. At least on the surface, those curbs seemed like they were targeted at the United States — in response to Trump’s globe-spanning tariffs.
Only, as we’re quickly realising, much of the whole world has been caught in the cross-fire.
Now, China isn’t preventing these exports altogether — at least not technically. It’s using a much subtler weapon: bureaucracy.
Under its new regime, if you want rare earth elements, or magnets, your suppliers must get a license for each shipment they make. For that, they must fill out lengthy forms — detailing why you need those magnets, getting endorsements from you, and providing a series of confirmations that nothing will be re-exported to the United States, or used for making defence equipment. That application also needs an endorsement from the Indian government.
After all of that, if you’re lucky, your application goes through — though these processes reportedly add ~45 days to your timelines. If you’re unlucky, your application simply gets rejected.
On the surface, this looks reasonably benign. What are a few forms to companies with billions of dollars in revenue? But for anyone in our automotive industry, it turns out, these bureaucratic hurdles have turned basic operations into living nightmares.
Small components, big leverage
Before we get to that, though, let’s quickly run you through why rare earths are important.
Let’s stick to magnets. Rare earth elements make excellent magnets — which retain their properties permanently, but are much lighter than anything you can make out of iron.
Now, these magnets are nowhere near the most glamorous parts of a car. Nor are they the most expensive. In fact, they make for less than 5% of a vehicle’s cost, according to CRISIL. Consider this: our automobile industry imported a mere ₹306 crore of rare earth magnets last year. That’s negligible, at least compared to the size of the industry.
And yet, they’re crucial.
You can’t have a modern car without magnets. See, magnets behave like a gateway between electricity and motion. Modern cars use this fact to make all sorts of features work.
Nowhere is this as obvious as it is for electric vehicles. Fundamentally, you need to get a giant car — something that weighs more than a tonne — to whiz around purely on electricity. That’s almost impossible without high-grade magnets. The average electric car requires approximately 1.5-2 kilograms of rare earth magnets
But it doesn’t stop there. Many fairly banal features in ordinary petrol or diesel cars work the same way. A power window, for instance, uses a tiny electric motor built around magnets to move the glass up or down. The same goes for your windshield wipers — they rely on small motors with magnets to sweep back and forth every time it rains.
If you can’t get your hand on rare earth magnets, you can’t build any of those systems.
And that’s magnets alone. There are many other uses that we aren’t even getting into. Rare earths run all sorts of nifty technology in your vehicle: from screens to sensors.
So, naturally, as China tightens its grip on the world’s rare earth supply, automotive companies the world over are starting to panic. To just give you a few examples:
According to an industry association, because of these curbs, many European auto suppliers are being forced to halt their operations.
Japan’s Suzuki Motors, too, was recently forced to suspend production of its flagship ‘Swift’ cars.
Auto manufacturers in the United States — the original target of these sanctions — raised the alarm on how these curbs could create serious risks for the sector. Recently, however, Donald Trump announced a deal with China to bring supplies back on.
And that’s only where the problems begin. Automobile manufacturers aren’t the only ones that need rare earth magnets. All sorts of industries — from those manufacturing solar panels to those creating fibre optics — have been hit by the same curbs.
How Chinese curbs affect Indian auto
Indian auto manufacturers have been hit by the same problems as their peers across the world — only, we somehow seem to have it even worse.
Boxes full of rare earth magnets meant for Indian manufacturers are currently sitting idle in Chinese ports, even as applications for their release are turned down. In theory, exports into India aren’t banned. But by creating a sufficiently complex export process, they’ve put something in place that feels exactly like a ban. At least so far, it seems, the Chinese haven’t approved a single rare earth export to our auto industry. It is simply sitting on almost 30 applications that our auto industry has made.
It’s not as though the decisions they have taken are any better. Consider Sona Comstar — a listed company which provides key components like motors to companies like Maruti Suzuki and TVS Motors. Theirs was the first application the Chinese actually took a decision on — they handed it a rejection.
At least some of this seems targeted at us alone. China is reportedly singling India out, denying us access to these magnets. It’s not that China’s making life convenient for anyone else: only a quarter of all applications from anywhere in the world appear to have been approved. But so far, India has had things especially rough. For instance, the Economic Times reported that the Indian unit of a major auto manufacturer was refused these magnets, even though the US and Germany plants of the very same company received the clearances it needed.
This could not have come at a more inconvenient time. We were, in fact, seeing a spike in demand for rare earth magnets, as a large part of our auto sector was preparing for aggressive EV roll-outs. These new cars ran on permanent magnet-based systems. And suddenly, we’re short of these magnets.
This has taken our automotive companies aback. For now, many of them are digging into their inventories to keep production going. According to Bajaj Auto’s Executive Director, Rakesh Sharma, for instance:
“As we speak, supplies and stocks are getting depleted. And if there is no relief and there are no shipments, then July production will get seriously impaired.”
Those inventories don’t buy us too much time. At best, we have weeks to solve this problem, before we’re out of supplies. The New Indian Express, for instance, quotes a Bengaluru-based EV start-up founder say this:
“Without alternatives, some manufacturers may have to halt production in the next few weeks.”
If things go on this way, there might be a crisis looming for the industry. Maruti, for instance, reportedly told the Ministry of Heavy Industries that it would have to stop making one of its flagship car models early next month, unless something is done. It also decided to slash production of its first ever EV, the e-Vitara, by two-thirds — even before it could open bookings. Similarly, Bajaj Auto MD, Rajiv Bajaj, said that the entire Indian EV industry could grind to a halt unless we find an answer to these curbs.
And EVs will only be the first to be hit. If this supply crunch goes on for longer, even petrol / diesel vehicles might run into problems.
So, what can we do?
Top line? There isn’t much we can do — at least not in the short run.
Ultimately, this is a problem created by the Chinese government, and they alone can provide any relief. And so, we’ll probably have to resort to diplomatic channels — convincing the Chinese government to step back. That’s a challenging task, and could require some deft diplomacy from India.
Our auto industry apparently plans to send in a high-level delegation to China, hoping to negotiate for some sort of relief. At the moment, 40–50 auto company executives are waiting with Chinese visas in hand, hoping that the Chinese Ministry of Commerce agrees to a meeting.
They’re also requesting the Indian government to start a dialogue with their Chinese counterparts. Right now, India’s embassy in China is in touch with the Chinese government, and is trying to push for a compromise. Our government hasn’t formally stepped in so far for high level talks of any sort. But if nothing else works, that might be on the cards as well.
What happens if it doesn’t look like diplomatic solutions are getting us anywhere, however? We’ll have few options ahead of us — none of them particularly great:
One, we could change the designs of our cars to avoid using these rare earth magnets. From the look of things, that’s what the government has been asking companies to consider. But that’s a hard solution to pursue. For any component that requires reasonably powerful magnets, companies will have to completely redesign how their cars work. And even then, the switch would hurt their performance.
Two, Indian companies may shift their product mix, moving their focusing to fossil fuel vehicles over their EV offerings. That could take some of the short-term pressure off, but it’s hardly the direction we want to move in. If anything, the government aims for 30% of all cars sold in India to be EVs, by 2030. This only pushes us away from that goal.
Three, instead of importing magnets and using them to build components, Indian companies could import entire parts from abroad. For instance, we could buy entire motors or sub-assemblies from abroad. There’s a chance that’s precisely what China wants us to do. That could be horribly expensive, however.
The real problem is long term
Let’s say we strike some deal, and get past this hurdle.
The problem won’t end there. We could easily hit another snag down the line. If anything, our current predicament will only convince China of how potent a weapon these bans can be. Every time there’s a conflagration — or any tension, really, between the two countries, you can bet that they’ll start thinking of these bans again.
We only have one way out: in the long run, India will need resilience. But how do we get there?
If we somehow learn to be completely self-reliant in sourcing rare earths, we could simply plug a key vulnerability in our economy. The government understands this — it is, for instance, trying to whip up a PLI program for rare earth magnets. But that’s a multi-decadal project. China has built up its rare earth dominance since the 1980s. If we try the same thing, it’ll probably take a few thousand crores in investment, and a decade or two of gestation time.
Such investments can safeguard India in the distant future. But it’s not a bet that’ll pay off any time soon.
But even if we can’t get to self-reliance nearly as fast as we’d like, in the interim, we need to diversify our supply chains to whatever extent is possible. No matter how big a grip it has on the market, China isn’t the only country with rare earths. Countries like Australia and Brazil have the ability to produce rare earths. While their capacity is still modest, with enough business going their way, they could become better equipped to supply our needs over time.
In an era of weaponised interdependence, friends are more important than ever.
Selling building rights in Bengaluru just became easier
Picture this: You own land in Bengaluru. Only, the government has been asking for it: it needs that land for a new road. Except, they won’t compensate you with any cash. How else could they make you whole?
Well, sometimes, they hand you a special certificate called TDR — ‘Transferable Development Rights’ — that gives you the right to build somewhere else in the city.
This isn’t a system that has always worked as well as one hoped. But recently, Karnataka announced some big changes to the regime, which could make it work much better. You can now use your TDR certificate anywhere across the entire Greater Bengaluru area, regardless of where your land was. This single change has given these TDR certificates real purpose, making them much more valuable and liquid.
Why is this a big deal? Let's step back and understand what this is about because this story goes much deeper than just one policy change in Bengaluru.
What exactly are "Development Rights"?
Here's how it works in simple terms:
Let's say you have a 1,000 square meter plot, where you're allowed to build two stories — for a total of 2,000 square meters of floor space (that's called Floor Space Index or FSI). If the government takes your land for a public project, instead of cash compensation, they could give you a certificate that basically says "you can build 2,000 square meters extra somewhere else".
Essentially, TDR certificates give a right to build, not a tangible piece of land.
Now, what happens if you don’t want to build anything? You can sell this certificate to some developer who wants to build a taller building than normally allowed. They’ll pay you market rates, and everyone's happy — you get fair compensation, the developer gets to build more, and the government gets the land without spending cash.
The concept isn't new. It started in the United States back in the 1970s, when New York was trying to preserve historic buildings. Today, such TDR systems operate in over 200 American cities. São Paulo, Brazil went even further, creating something called CEPACs – basically TDR certificates that you can trade on the stock exchange like shares. China, too, has its own version called "Dipiao" — or land tickets.
TDR Comes to India
Mumbai was the first Asian city to try TDR back in 1991, and it was a game-changer. Back then, the city was desperately trying to build roads and infrastructure, even though it didn't have any money to actually buy land — at least not at market rates.
TDR solved this. Suddenly, they could take land for free, and give owners those valuable certificates instead.
Hyderabad followed — with a digital twist. They created India's first fully online TDR system in 2020, where the entire system is computerised. The system has matured surprisingly well. Property owners there are getting up to four times the benefits compared to cash compensation, and the city has issued over 550 TDR certificates so far.
Ahmedabad tried its own twist on the idea — using TDR for heritage conservation, when it became a UNESCO World Heritage City. Sadly, that hasn't worked well. Only 81 heritage properties got TDR certificates in 9 years, largely because the process takes too long and the compensation is too low.
Bengaluru, too, got into the game. But so far, it has struggled to make them useful.
Karnataka's rockey journey
Bengaluru introduced TDRs in 2005, essentially copying Mumbai's model. Initially, it seemed promising – the city was growing rapidly, land was expensive, and there was a clear need for infrastructure. But it wasn’t to be.
But by 2010, problems were becoming apparent. The whole system was plagued by delays, corruption, and inadequate compensation. Here's what was happening on the ground:
Landowners were rejecting TDR offers. The development rights the government was offering as compensation was linked to a “guidance value” of what people were expected to give up. This guidance value wasn’t really linked to anything, and was 30-50% below market rates. And so, landowners simply refused these lowballed offers. While the motivations behind rejecting these offers are completely justified, this also meant that land acquisitions got delayed, stalling crucial projects required for development.
Geographic restrictions killed market liquidity. The Karnataka government restricted the TDRs they have to tiny Local Planning Areas (LPAs). That locked them geographically. Certificates from one area often had no value in another area just a few kilometers away, because they were under other jurisdictions. Instead of one efficient citywide market for development rights, this created dozens of tiny, illiquid markets. In many of these areas, there was simply no demand for extra FSI, making TDR certificates worthless paper.
The process was a bureaucratic nightmare. Getting a TDR certificate required approvals from multiple departments, often taking 6 months to 2 years. Over a 1,000 files were simply stuck with civic authorities for approval. Many landowners gave up in frustration.
Rural landowners got discriminatory treatment compared to urban property owners, even when land was taken for the same public projects like highways or airports. A farmer might get basic compensation while an urban landowner got premium TDR rates. This restricted the attractiveness of this mechanism to a limited few people.
Corruption scandals erupted around 2018-2019, with allegations that politicians and officials were manipulating TDR valuations for personal benefit. Some even got TDR certificates for land that was never actually acquired, while genuine landowners waited years for compensation.
By 2020, the system was so completely discredited that the Karnataka government took the unprecedented step of suspending TDR entirely. For two years, no new TDR certificates were issued while the government completely redesigned the system.
Eventually, though, the system saw a turnaround, with the Karnataka Town and Country Planning (Amendment) Act, 2021. This was a comprehensive overhaul of the legal framework. Essentially, the law said the government could allow TDR to be used anywhere they wanted, not just in your immediate local area. It also shifted to a much more market-oriented approach to valuing land.
But for a long time, this didn’t reflect in practice.
The 2024-2025 changes
That brings us to today. Karnataka has finally activated that 2021 law. It has officially announced that TDR certificates can be used anywhere across the entire Greater Bengaluru area.
It's like the government had passed a law in 2021 saying "gift cards can be made valid at multiple stores — but only if we decide to allow it." And then, they just let it be. Now, they’ve finally said "All gift cards now work at every store in the entire city". The legal framework was there, but they only just flipped the switch to actually make it work citywide.
Let's break down exactly what's changed now in the TDR system:
Market-Rate Valuation: Previously, TDR was calculated using government-set “guidance value”, which was well below market prices. Now, TDR is calculated using Karnataka Stamp Act guidance values. The stamp act is how Karnataka itself earns money, so it’s much more relevant. It’s based on real market data, including actual transactions and prevailing market rates, which reflect the price at which properties are actually bought and sold in any given locality much more accurately.
Geographic Flexibility: The biggest game-changer is that TDR certificates now work across the entire Greater Bengaluru Area, not just local planning areas. This finally creates a unified market, and with that, better liquidity and price discovery. Developers can source TDR from wherever it's available and use it wherever they're building. The government has also standardized compensation for different land types — making the system uniformly attractive for all.
Digital and Fast: Everything now happens online through integrated government portals. The law mandates 7-day processing for TDR certificates – a massive improvement from the 6-month to 2-year delays of the old system. Applications will not be tracked in real-time, valuations will be automated based on government databases, and certificates will be issued electronically. With so much happening digitally, hopefully, opportunities for corruption will reduce.
But why did they do this now? The Bangalore Palace might have come to the city’s rescue.
Back in 1996, the Karnataka government enacted the Bangalore Palace (Acquisition and Transfer) Act to acquire the 472-acre Palace Grounds, setting total compensation at ₹11 crore crore for the entire property. The Mysore royal family challenged this acquisition in the Supreme Court. The case has been pending ever since — for over 28 years now.
In 2014, proposals emerged to widen roads around the palace grounds. Civic agencies acquired over 15 acres of land for ₹1 crore worth of TDR. This figure, they claimed, was the land’s valuation as per Bangalore Palace (Acquisition and Transfer) Act. That was a terrible low-ball for prime land at the centre of the city, and it reignited the legal battle.
After decades, the case finally got to its verdict in December 2024. The Court directed the Karnataka government to provide TDR certificates valued at ₹3,014 crore to the royal family for this acquisition, astronomically higher than the ₹1 crore they had tried to get away with. Last month, they pushed it even higher, to over ₹3,400 crore worth of TDR certificates — one of the largest TDR awards in Indian history – while addressing even more delays in compensation.
Apart from making the Mysore royal family whole, this case established two important principles:
Market-rate valuation is mandatory: Courts will not accept below-market compensation. It said TDR is only constitutionally valid compensation if it's fair, at market-rate, and properly structured.
Guidance values are the standard: The Supreme Court used Karnataka Stamp Act guidance values rather than government’s own ready-reckoner rates.
This case sent shockwaves through government circles. It showed that courts would enforce fair compensation principles, even if and when governments challenged them — which by the way, the Karnataka government is still doing. If they didn’t want to run into endless hurdles, they would have to change something.
The bigger picture
Does this instantly solve Bengaluru’s famed infrastructure problems? We won’t hold our breath.
But Karnataka's TDR reforms represent something bigger than just a policy change. They signal a fundamental shift in how we think about property rights and urban development. Instead of seeing land acquisition as a unilateral right of a government to take land away from citizens, we’re trying to find ways of bringing markets in to even the scales. We’re unlocking value without forcing governments to empty the coffers, and creating a partnership where everyone benefits.
As residents of Bengaluru — and well-wishers of this beautiful city — we hope that this system will now work as intended. Time will tell if it actually does, but for now, it's an experiment worth watching.
Tidbits
India’s rice and wheat stocks hit record highs amid surging procurement
Source: Reuters
India has entered June 2025 with record foodgrain inventories, as rice and wheat stocks significantly exceeded official buffer norms. Rice stocks, including unmilled paddy, have touched an all-time high of 59.5 million metric tons, marking an 18% year-on-year increase and surpassing the July 1 buffer norm of 13.5 million tons by a wide margin. Wheat stocks have also reached a four-year high at 36.9 million tons, well above the target of 27.6 million tons. The surge follows strong wheat procurement of 30 million tons this season — the highest since 2021. This comes as India, the world's top rice exporter, lifted its final rice export restrictions in March 2025. With new procurement cycles beginning again in October, pressure may build on storage and distribution capacities if stock levels remain elevated.
Paytm slides 10% after government denies UPI fee plans
Source: Reuters
Shares of Paytm (One97 Communications) tumbled as much as 10% on Thursday, before paring some losses to close 8% lower, marking their steepest intraday fall since February 2024. The sharp decline followed a statement from India’s Finance Ministry, which called recent reports about introducing fees on UPI transactions “false and baseless.” At present, UPI payments remain free for users, while merchants pay fees to banks or service providers like Paytm. The broader Nifty 50 index also slipped 0.2% during the session. According to UBS, the absence of new incentives or fee structures could lead to a more than 10% drop in Paytm’s adjusted core profits in FY26 and FY27. The clarification was termed “sentiment negative” for Paytm, given its strategic dependence on UPI monetisation.
Inox Wind Energy merges with Inox Wind; ₹2,050 crore debt to be wiped off
Source: Business Line
Inox Wind Ltd (IWL) is set to absorb its holding company, Inox Wind Energy Ltd (IWEL), following the merger approval by the NCLT Chandigarh bench. Under the scheme, IWEL shareholders will receive 632 shares of IWL for every 10 shares held. The merger is expected to reduce IWL’s liabilities by ₹2,050 crore, significantly improving its balance sheet. This consolidation brings all wind energy-related assets and obligations under a single listed entity. The restructuring, part of a larger two-year simplification drive by the INOXGFL Group, also aligns promoter shareholding directly with IWL. The move simplifies the capital structure and is aimed at enhancing operational efficiency and financial clarity.
- This edition of the newsletter was written by Prerana and Pranav.
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