Despite a broadly stable outlook, India's economy faces notable headwinds, the latest Economic Review for June warned. Sluggish global demand, especially from a contracting US economy, alongside uncertainty over tariffs and weak private investment, could weigh on growth. While FY26 may see steady momentum, deeper shifts in global supply chains for semiconductors, rare earths, and magnets pose medium-term challenges.
In the medium term, given the ongoing momentous shifts in global supply chains in the areas of semiconductor chips, rare earths and magnets, India has its task cut out, said the review by the Department of Economic Affairs.
The economy has the look and feel of “steady as she goes” as far as FY26 is concerned, as per the report. Despite the broadly positive outlook, downside risks remain, it said.
"While geopolitical tensions have not elevated further, the global slowdown, particularly in the US (which shrank by 0.5 per cent in Q1 2025), could dampen further demand for Indian exports. Continued uncertainty on the US tariff front may weigh on India’s trade performance in the coming quarters."
"Slow credit growth and private investment appetite may restrict acceleration in economic momentum. Further, given the deflationary trend in the wholesale price index, one has to observe economic momentum in nominal quantities. Measured in constant prices, economic activity may appear healthier than it is."
India's rare dependence on China
India’s key industrial sectors ranging from transport equipment to electronics, rely significantly on rare earth imports, with China being the dominant supplier.
A recent SBI analysis suggested that ongoing curbs on Chinese rare earth exports could influence domestic production, export competitiveness, and, to some extent, the financial exposure of banks linked to these industries.
The top sectors impacted by China’s ban include – Transport equipment, basic metals, machinery, construction and electrical and electronics, as per the analysis. Both domestic production and exports will be impacted.
"Rare earth being a critical mineral, disruption in supply of rare earth can impact the financial exposure of banks to these sectors as also ancillary ones. 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," said SBI recently.
An analysis of India’s trade data showed that the country’s total imports of rare earth elements and related compounds have averaged around $33 million annually over the past four years, with FY25 imports at $31.9 million. Imports of magnets have been significantly higher, averaging $249 million during the same period and rising to $291 million in FY25. The study highlighted that direct absorption of rare earths is concentrated in six core sectors, notably basic metals and electrical and optical equipment.
In the case of magnets, usage is primarily concentrated in the automotive, electrical and electronics, and machinery sectors. 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.
Rare earth is a subset of critical mineral with wide application in many emerging technologies. Critical minerals (including rare earth) form an important part of the modern production process because of their unique
physical, chemical properties in reducing energy consumption, achieve miniaturization and thermal stability.
During the last three decades, there has been an explosion in the applications of rare earth and their alloys in several technology devices.
Because of their unique physical, chemical, magnetic, luminescent properties, these elements help to make many technological advantages such as reduced energy consumption, miniaturization, durability and thermal
stability.
In the medium term, given the ongoing momentous shifts in global supply chains in the areas of semiconductor chips, rare earths and magnets, India has its task cut out, said the review by the Department of Economic Affairs.
The economy has the look and feel of “steady as she goes” as far as FY26 is concerned, as per the report. Despite the broadly positive outlook, downside risks remain, it said.
"While geopolitical tensions have not elevated further, the global slowdown, particularly in the US (which shrank by 0.5 per cent in Q1 2025), could dampen further demand for Indian exports. Continued uncertainty on the US tariff front may weigh on India’s trade performance in the coming quarters."
"Slow credit growth and private investment appetite may restrict acceleration in economic momentum. Further, given the deflationary trend in the wholesale price index, one has to observe economic momentum in nominal quantities. Measured in constant prices, economic activity may appear healthier than it is."
India's rare dependence on China
India’s key industrial sectors ranging from transport equipment to electronics, rely significantly on rare earth imports, with China being the dominant supplier.
A recent SBI analysis suggested that ongoing curbs on Chinese rare earth exports could influence domestic production, export competitiveness, and, to some extent, the financial exposure of banks linked to these industries.
The top sectors impacted by China’s ban include – Transport equipment, basic metals, machinery, construction and electrical and electronics, as per the analysis. Both domestic production and exports will be impacted.
"Rare earth being a critical mineral, disruption in supply of rare earth can impact the financial exposure of banks to these sectors as also ancillary ones. 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," said SBI recently.
An analysis of India’s trade data showed that the country’s total imports of rare earth elements and related compounds have averaged around $33 million annually over the past four years, with FY25 imports at $31.9 million. Imports of magnets have been significantly higher, averaging $249 million during the same period and rising to $291 million in FY25. The study highlighted that direct absorption of rare earths is concentrated in six core sectors, notably basic metals and electrical and optical equipment.
In the case of magnets, usage is primarily concentrated in the automotive, electrical and electronics, and machinery sectors. 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.
Rare earth is a subset of critical mineral with wide application in many emerging technologies. Critical minerals (including rare earth) form an important part of the modern production process because of their unique
physical, chemical properties in reducing energy consumption, achieve miniaturization and thermal stability.
During the last three decades, there has been an explosion in the applications of rare earth and their alloys in several technology devices.
Because of their unique physical, chemical, magnetic, luminescent properties, these elements help to make many technological advantages such as reduced energy consumption, miniaturization, durability and thermal
stability.
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