Relevance for UPSC:
Important for GS Paper II (International Relations & Trade Policy) — relates to WTO rules, subsidies, industrial policy, and India–China trade dynamics.

In October 2025, China filed a formal complaint against India at the World Trade Organization (WTO), alleging that India’s Production-Linked Incentive (PLI) schemes provide unfair subsidies that violate WTO rules. The dispute marks a significant flashpoint between the two Asian powers, reflecting deeper tensions over industrial competitiveness and global trade norms.

Background — What is the PLI Scheme?

India launched the PLI scheme in 2020 to boost domestic manufacturing, attract investment, and make Indian industries globally competitive.

• The scheme offers financial incentives to companies based on incremental sales from products manufactured in India.
• It aims to promote domestic value addition (DVA), reduce import dependency, and integrate Indian firms into global value chains (GVCs).
• So far, the scheme covers 14 key sectors, including electronics, pharmaceuticals, electric vehicles, auto components, and advanced chemistry cell (ACC) batteries.

The core objective is to make India a manufacturing hub under the “Make in India” and “Atmanirbhar Bharat” (self-reliant India) initiatives.

What China Alleges

China’s WTO complaint specifically targets three PLI programmes, alleging they violate multilateral trade rules by discriminating against imports and favouring domestic goods:

1. PLI Scheme for Advanced Chemistry Cell (ACC) Batteries – to promote local battery manufacturing for electric vehicles (EVs).
2. PLI Scheme for Automobile and Auto Components – to support Advanced Automotive Technology (AAT) production.
3. Scheme to Promote Electric Vehicle Manufacturing – to attract global EV makers and support domestic ones.

According to China:

• These schemes link eligibility for incentives to domestic value addition — meaning companies must source a certain percentage of materials or components locally.
• This requirement, China claims, disadvantages imported products (including those from China) and violates WTO principles of non-discrimination and national treatment.
• China argues that India’s subsidies fall under “Import Substitution Subsidies” (IS), which are prohibited under the Agreement on Subsidies and Countervailing Measures (SCM Agreement).

WTO Rules and India’s Position

Under WTO law:

• Providing industrial subsidies to promote domestic industries is a sovereign right.
• However, these subsidies must not distort trade or discriminate against foreign goods.
• The SCM Agreement classifies subsidies into three categories:
  • Prohibited Subsidies – directly tied to exports or use of domestic goods over imported ones.
  • Actionable Subsidies – not prohibited, but can be challenged if they harm another member’s trade interests.
  • Non-Actionable Subsidies – those that are neutral or beneficial (like for R&D or regional development).

China claims that India’s PLI schemes fall into the first category — prohibited subsidies.
However, India maintains that:

• The PLI is not export-contingent, nor does it explicitly demand local content use.
• Incentives are based on sales growth and investment, not on the exclusion of foreign goods.
• Hence, the PLI complies with WTO principles and serves as a legitimate industrial development policy.

Dispute Process at the WTO

1. Consultation Phase: India and China will first hold formal consultations to resolve the issue diplomatically.
2. Panel Formation: If talks fail within 60 days, China may request the establishment of a WTO Dispute Settlement Panel.
3. Appellate Review: Any appeal would go to the WTO Appellate Body, though it currently remains non-functional since 2019, delaying final resolutions.

In essence, the process could take years — and until then, both countries can continue implementing their policies.

What This Means for India

• The case tests India’s ability to design WTO-compliant industrial policies while promoting domestic manufacturing.
• A negative ruling could force India to revise its PLI framework, especially in high-value sectors like EVs and batteries.
• At the same time, it highlights China’s strategic concern — India’s growing foothold in sectors where China has dominated, such as clean energy technology and EV supply chains.

Important Terms

1. Subsidy: Financial support or incentive given by a government to businesses to promote specific industries or products.
2. National Treatment: WTO principle requiring imported goods to be treated equally to similar domestic goods once they enter the market.
3. Domestic Value Addition (DVA): The percentage of production value generated within the domestic economy.
4. Import Substitution Subsidy (IS): A subsidy linked to using domestic products instead of imported goods — prohibited under WTO rules.
5. SCM Agreement: The WTO framework that regulates subsidies and allows members to challenge unfair trade practices.
6. Trade-Related Investment Measures (TRIMs): WTO rules that prohibit policies favouring domestic over imported products in investment-linked schemes.

Key Takeaways

• China’s WTO complaint targets India’s PLI schemes for EVs, batteries, and auto components, alleging they distort trade by favouring local products.
• India defends the PLI as a fair and transparent incentive mechanism not linked to export performance or local content mandates.
• The case underscores the delicate balance between self-reliant industrial policy and global trade obligations.
• It also signals intensifying geo-economic competition between India and China in the green technology space.

One-Line Wrap:
China’s WTO complaint challenges India’s push for self-reliant manufacturing — a test of how far national industrial ambitions can go within global trade rules.

UPSC Mains Question:
Discuss the implications of China’s WTO complaint against India’s Production-Linked Incentive schemes. How can India balance industrial growth with its international trade obligations?