This article is Part 2 of the five-part REPM Series on India’s rare earth permanent magnet manufacturing opportunity. While Part 1 examined the technology and capability challenge, Part 2 turns to the tender design and beneficiary selection process. It analyses whether an L1-style, lowest-incentive bidding framework is adequate for selecting enterprises that must acquire complex technology, secure raw materials, build customer confidence and create a strategically important manufacturing capability.
Why a Strategically Important Industry may be Reduced to a Reverse Auction
India’s Rare Earth Permanent Magnet scheme has been presented as an industrial-policy intervention intended to create a strategically important domestic manufacturing capability. Yet the REPM tender designed to select beneficiaries begins to resemble a reverse auction after a technical screening exercise.
That distinction matters. A reverse auction is useful when the buyer knows what is being purchased, competing offers are broadly comparable and the principal public objective is to minimise cost. The REPM scheme is attempting something much harder. It is trying to identify five enterprises capable of acquiring complex technology, financing and commissioning integrated plants, securing raw materials, qualifying products with demanding customers and competing in a market dominated by established Chinese suppliers with decades of cost advantage.
The REPM tender asks bidders to describe many of these matters in a detailed project report. But once the Technical Committee declares a bidder technically qualified, the final ranking is straightforward: the five bidders quoting the lowest sales-linked incentive rates become L1 to L5 and are eligible for capacity allocation.
The scheme therefore asks strategic questions and then selects on a transactional answer.
Why L1 Selection is the Default, and Why it is Insufficient Here
The Government’s reliance on lowest-price ranking is not accidental. Indian public procurement, governed by the General Financial Rules and CVC guidelines, strongly favours L1 mechanisms because they are auditable, reduce discretionary judgement and minimise corruption risk. In standard procurement, where the deliverable is well-defined and competing offers are genuinely comparable, this logic is sound.
The REPM scheme does not meet those conditions. The “deliverable” is not a standard product but the creation of an industrial capability that does not yet exist domestically. The competing offers are not comparable in any meaningful operational sense; they differ in technology readiness, partner credibility, management competence, raw-material security and customer access. Applying a mechanism designed for commodity procurement to strategic industry creation is a category error, however administratively convenient.
Other countries have confronted the same design problem. The United States CHIPS Act allocated semiconductor subsidies through a merit-based evaluation involving technology viability, workforce plans, national-security considerations and community impact, not through a reverse auction on subsidy rate. The European Chips Act similarly uses qualitative assessment of strategic value. Japan’s semiconductor subsidies to TSMC and Rapidus were negotiated on strategic merit, not competitively bid on price. These approaches carry their own risks, including political influence and subjectivity. But they reflect a recognition that strategic industrial policy requires strategic selection.
India’s procurement framework does permit Quality-cum-Cost-Based Selection, where technical scores carry defined weight alongside price. The REPM tender could have adopted such an approach without departing from established regulatory practice.
A Subsidy can Create Interest. It cannot Create Strategy.
Government incentives are often necessary to overcome first-mover disadvantages in industries involving large capital commitments and uncertain markets. There is nothing inherently wrong with businesses entering REPM manufacturing because the Government has improved the economics.
The concern is the order of the decision. In a strategy-led investment, a company first establishes that the opportunity fits its capabilities and ambitions. It understands the technology, determines where it can compete, identifies customers, assesses raw-material exposure and develops a credible route to market. The incentive then helps close a viability gap.
In a subsidy-led investment, the sequence is reversed. A large scheme is announced. Companies begin examining a sector that was not previously part of their strategy. Technology partners are contacted, consultants are engaged, project reports are assembled and a business case is constructed around the available support.
The resulting proposal may still become viable. But the REPM tender needs to distinguish between an enterprise using an incentive to accelerate a considered strategy and one developing a temporary strategy to pursue an incentive. The publicly available evaluation structure does not show clearly how that distinction will be made.
Technical Qualification in the REPM Tender may Flatten Real Differences
The RFP prescribes minimum net-worth requirements based on committed capacity. It also requires a detailed project report addressing promoters, technology, manufacturing processes, capital equipment, financing, raw materials, target segments, sales projections, risk management, manpower and relevant experience.
The DPR is therefore expected to answer many sensible questions. What is not publicly visible is an equally detailed scoring framework explaining how the answers will be compared. There are no disclosed numerical weights for technology readiness, binding partner commitments, project-execution capability, management competence, customer access, financing certainty, raw-material security or commercial viability.
The outcome that matters is binary: qualified or not qualified.
Consider two technically qualified bidders. Bidder A has an executed joint venture with an established magnet manufacturer, a committed technical team, customer-development programmes underway and a conservative financial model. Bidder B has a preliminary technology understanding, consultant-prepared market estimates and a plan to resolve the critical gaps after selection. If both pass technical evaluation, these differences no longer influence final ranking. The bidder quoting the lower incentive ranks ahead.
Financial strength is obviously necessary. An integrated magnet facility should not be entrusted to an undercapitalised promoter. But net worth is not a proxy for technology absorption, powder-metallurgy competence, process discipline or customer-qualification capability. A transparent tender does not merely tell applicants what documents to submit. It explains what the decision-maker values and how materially different capabilities affect the outcome.
One Price Quotation Determines far more than Fiscal Support
The financial bid comprises a single quoted sales-incentive rate, capped at 2,150 per kilogram. Among technically qualified bidders, the five lowest quotations receive the highest ranking.
But the bidder is not merely competing for a sales incentive. Selected beneficiaries are also eligible for a capital subsidy equal to 15 percent of eligible investment, subject to capacity-linked caps ranging from 75 crore to 150 crore. More significantly, the three lowest bidders receive an additional advantage: IREL is to allocate 500 MTPA of NdPr oxide among L1, L2 and L3, with 200 MTPA for L1, 167 MTPA for L2 and 133 MTPA for L3.
A single incentive quotation therefore influences access to capacity allocation under a national strategic scheme, capital subsidy, beneficiary status and the credibility attached to it, and scarce assured domestic raw material for the top three bidders.
A bidder may rationally suppress its sales-incentive requirement to secure these wider advantages. Even if the sales incentive itself contributes modestly, the capital subsidy, raw-material preference, signalling value and first-mover position may justify an aggressive quotation. This is not misconduct. It is rational bidding in response to the tender’s own incentive structure.
The raw-material allocation adds a circular element. A bidder may quote a lower incentive because it expects assured IREL oxide. It then receives assured oxide because it quoted the lower incentive. The mechanism rewards aggressive pricing with a tangible operational advantage that further improves the aggressive bidder’s economics.
The RFP prescribes a ceiling of 2,150 per kilogram but the reviewed wording does not equally identify a positive minimum. Whether a zero or nominal quotation is permissible is a legitimate question that the REPM tender should have addressed expressly, rather than leaving to inference in a process where a difference of one rupee per kilogram can alter ranking.
L4 and L5 Carry the Same Obligations with Fewer Advantages
The structural consequence of this design deserves attention. L4 and L5, while selected as beneficiaries, receive no IREL oxide allocation. They must arrange their entire rare-earth oxide requirement independently, which in practice means importing from China, the same supply dependency the scheme seeks to reduce.
These two enterprises are expected to build the same strategic capability, meet the same commissioning milestones and satisfy the same performance guarantees as L1 through L3, but with a materially weaker starting position on raw-material security. If India’s domestic oxide supply remains constrained and Chinese export policies tighten, L4 and L5 face feedstock risk that the top three are partially shielded from.
The scheme therefore creates two tiers of beneficiary based entirely on the aggressiveness of a single price quotation. Whether this produces the most resilient industrial base or merely rewards the most aggressive bidding strategy is a question worth examining.
The Risk of Adverse Selection
A well-designed selection mechanism should encourage capable bidders to reveal their true requirements. The REPM tender may instead reward those most willing to discount future uncertainty.
A prudent bidder will account for technology risk, yield ramp-up, customer-qualification timelines, working-capital requirements, raw-material volatility and competitive pricing responses from established Chinese producers. Its required incentive may therefore be higher.
A more optimistic bidder may assume rapid commissioning, high yields, immediate market acceptance and stable selling prices. It can quote less.
If both pass technical evaluation, optimism wins.
The lowest quotation can arise from genuine operating efficiency. It can equally arise from optimistic selling-price assumptions, understated process losses, underestimated customer-qualification periods, unrealistic capacity utilisation, incomplete technology costs or an expectation that terms will later be relaxed. The REPM tender cannot distinguish between these causes from the quoted number alone.
Performance guarantees and milestone obligations provide some protection. They can penalise failure or enable replacement. But a failed strategic project imposes costs beyond forfeited security. It consumes time, delays domestic capability, disrupts the intended capacity plan and may leave partially developed assets that are difficult to repurpose.
The objective should be to avoid selecting fragile projects, not merely to possess remedies after they fail.
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What a Stronger Evaluation Could Look Like
The sales-incentive quotation should remain relevant. Government must protect public funds and should not provide more support than necessary.
But price should be one component of a weighted assessment, not the sole differentiator after a threshold test. India’s own procurement regulations permit Quality-cum-Cost-Based Selection. A possible framework could assign explicit, published weights to technology readiness and partner credentials, promoter capability and relevant industrial experience, customer-qualification strategy, raw-material security arrangements, project-execution readiness and financing certainty, and the quoted sales-incentive rate.
To manage subjectivity and maintain auditability, the technical evaluation could be conducted by a panel combining domain experts (from institutions such as DMRL or C-MET), independent industry professionals and, where appropriate, international specialists. Scoring criteria would be published in the RFP, individual scores would be recorded, and bidders would receive substantive feedback on their technical evaluation. This is not a departure from Indian procurement practice; it is how professional-services and complex-infrastructure contracts are routinely evaluated.
An alternative would be a staged process. The Government could first shortlist credible promoters through technical evaluation, allow them a defined period to mature technology and customer arrangements, independently validate readiness and only then invite the shortlisted group to quote incentives. This would ensure that price competition occurs among bidders of comparable capability rather than among bidders of comparable paperwork.
Selecting Beneficiaries is not the Same as Creating an Industry
The REPM scheme is not an ordinary purchase in which Government receives the same product regardless of who supplies it. The quality of the selected promoters, their technology relationships, their commercial understanding and their ability to withstand early setbacks will shape the industry India eventually obtains.
The REPM tender’s attraction is obvious. It converts a difficult policy decision into a neat ranking: technically qualified bidders arranged from lowest to highest incentive quotation. Neatness should not be confused with strategic rigour.
The lowest bidder may indeed be the most efficient and capable enterprise. But the current structure does not demonstrate that conclusion. It demonstrates only that the bidder passed a technical assessment whose comparative weights are undisclosed and then requested less sales support than its competitors.
That is enough to win a REPM tender. Whether it is enough to build a durable rare earth magnet industry is the question the process leaves unresolved.
In the next part of this five-part REPM Series, we move beyond tender selection and examine what happens after the factory is commissioned. Even a selected beneficiary with an operating plant must still secure customer approval, pass application-level validation, build supplier confidence and convert subsidised capacity into repeat commercial supply. Part 3 therefore focuses on why plant commissioning is not the finish line for India’s REPM manufacturing ambition.
