US and China Challenge India's Manufacturing Ambitions Over WTO Subsidy Concerns
Prime Minister Narendra Modi's ambitious 'Make in India' initiative, designed to transform the nation into a global manufacturing powerhouse, is encountering significant resistance from the world's two largest economies. Both the United States and China have raised formal objections, arguing that India's subsidy policies contravene established international trade regulations.
The Core of the Dispute: Production-Linked Incentives
Central to the escalating trade tensions is India's Production-Linked Incentive (PLI) scheme, a cornerstone policy launched by the Modi government in 2020. This comprehensive program, with a total allocation of approximately ₹1.91 trillion ($21 billion), aims to bolster domestic manufacturing across 14 critical sectors. These industries range from electronics and pharmaceuticals to solar equipment and advanced medical devices.
According to detailed reports, trading partners maintain that these substantial financial incentives provide an unfair competitive advantage to Indian companies, effectively disadvantaging foreign competitors in the market. The solar energy sector has emerged as a particular flashpoint in this ongoing dispute.
Specific Actions and WTO Involvement
In a significant development, the United States recently announced preliminary tariffs of 126% on solar equipment imported from India. This decisive action followed an investigation which concluded that the Indian solar industry had received what the US deems unfair government support. Analysts predict these steep duties will likely create substantial barriers for Indian solar manufacturers seeking to compete effectively in the lucrative US market.
Simultaneously, the World Trade Organization's dispute settlement body has taken a formal step by constituting a panel to review China's specific complaint. Beijing alleges that India's incentive schemes for the automotive and renewable energy sectors deliberately favor domestically produced goods over imports, thereby placing Chinese exporters at a significant disadvantage. This panel was established after initial consultations between the two nations failed to resolve the fundamental disagreements regarding India's industry-specific subsidies.
India's Strategic Defense and Economic Goals
Indian officials have stated their firm intention to defend the PLI schemes vigorously, maintaining that these initiatives are fully consistent with WTO regulations. These programs play a pivotal role in India's broader economic strategy to increase the manufacturing sector's contribution to the nation's Gross Domestic Product (GDP) from the current level of about 17% to a target of approximately 25%.
Biswajit Dhar, a prominent New Delhi-based independent trade economist and former professor at Jawaharlal Nehru University, emphasized the program's importance. "Without schemes like PLI, a genuine revival of the manufacturing sector looks exceedingly difficult," Dhar stated. He further suggested that while defending these policies, India should also explore complementary strategies to support industries, such as increased investment in technology development and fostering innovation ecosystems.
Broader Geopolitical and Trade Context
This criticism arrives at a diplomatically sensitive juncture for India. New Delhi has only recently reached an agreement with Washington, bringing months of bilateral trade tensions to a close—a period during which India faced some of the steepest tariffs the US has imposed on Asian economies. Concurrently, India has been engaged in efforts to stabilize and improve its complex relationship with Beijing.
It is noteworthy that both the United States and China themselves face international scrutiny regarding their own subsidy policies. In 2024, Beijing formally challenged specific aspects of the US Inflation Reduction Act of 2022, arguing that certain American subsidies were improperly tied to the use of domestically produced inputs. Separately, European nations have consistently accused China of utilizing large-scale, state-backed subsidies to accelerate the rapid growth of its electric vehicle and solar panel manufacturing industries, allegations that mirror the complaints now directed at India.
The unfolding dispute underscores the delicate balance India must strike between pursuing aggressive industrial policy to achieve its economic ambitions and navigating the complex rules of the global trading system, all while managing relationships with its most significant economic partners.
