The Hindu: Published on 30th Oct 2025.
Why in News?
China has filed a complaint against India at the World Trade Organization (WTO), alleging that India’s Production-Linked Incentive (PLI) schemes for certain sectors violate WTO subsidy rules. China claims these schemes unfairly promote domestic products over imported ones, particularly from China.
Background:
The Production-Linked Incentive (PLI) Scheme was launched by India in 2020 to boost domestic manufacturing and make India a global production hub.
Under the PLI, companies receive financial incentives for achieving incremental production targets in specific sectors such as electronics, auto, batteries, and EVs.
The three specific PLI schemes that China has challenged are:
PLI for Advanced Chemistry Cell (ACC) batteries
PLI for Auto and Auto Components (Advanced Automotive Technology)
PLI for Electric Vehicles (EVs)
China’s Complaint:
China contends that:
India’s PLI schemes offer financial subsidies based on Domestic Value Addition (DVA) — for example, 50% in auto sector and 25% in battery manufacturing.
This encourages use of Indian-made goods instead of imported ones, violating WTO’s non-discrimination rule.
China argues this discriminates against Chinese exports and constitutes an Import Substitution (IS) subsidy, which is prohibited under WTO law.
What WTO Law Says on Subsidies:
The Subsidies and Countervailing Measures (SCM) Agreement under WTO regulates government subsidies.
It classifies subsidies into:
Prohibited Subsidies: Contingent on export performance or use of domestic goods (Import Substitution subsidies).
Actionable Subsidies: Allowed but can be challenged if they harm trade interests.
Non-actionable Subsidies: Generally permitted.
Under Article 3.1(b) of the SCM Agreement, subsidies that depend on using domestic goods over imported goods are strictly prohibited.
Additionally:
Article III.4 of GATT mandates national treatment, meaning imported goods must be treated equally to domestic goods.
Article 2.1 of TRIMs Agreement bans trade-related measures that violate this national treatment, including local content requirements.
India’s Position:
India may argue that:
- The DVA requirement does not necessarily mean local content.
- Domestic value can be created through innovation, design, assembly, or services, not just through Indian materials.
- Hence, PLI is performance-based, not a discriminatory subsidy.
What Happens Next?
First step: WTO’s consultation phase, where India and China attempt an amicable resolution.
If unresolved: A WTO dispute panel will adjudicate.
However, the WTO Appellate Body has been non-functional since 2019, meaning any appeal will stall the final decision — effectively maintaining the status quo.
Broader Implications:
- This case reflects rising trade friction between India and China amid strategic competition.
- It may affect India’s manufacturing strategy and ‘Make in India’ goals if the WTO finds India’s subsidies inconsistent with global trade norms.
- It could also influence other countries’ subsidy programmes and future WTO reforms on industrial policy flexibility.
