New Delhi – India’s ambitious “Create in India” initiative, designed to transform the nation into a global manufacturing hub, is facing increasing scrutiny and challenges from both the United States and China. Whereas India is currently the world’s fifth-largest economy and projected to become the third-largest in the coming years, its domestic subsidy policies are drawing criticism from major trading partners who allege violations of international trade rules. This pushback comes at a delicate moment as India navigates complex relationships with both Washington and Beijing, seeking to stabilize trade and foster economic growth.
The core of the dispute lies in India’s Production-Linked Incentive (PLI) scheme, launched in 2020. This program, allocating ₹1.91 trillion (approximately $21 billion USD as of February 26, 2026) aims to bolster domestic manufacturing across 14 key sectors, including electronics, pharmaceuticals, solar equipment, and medical devices. The PLI scheme offers financial incentives to companies based on incremental sales of locally manufactured goods, intending to encourage investment and production within India. Though, trading partners argue these incentives create an uneven playing field, giving domestic companies an unfair advantage over foreign competitors.
US Tariffs on Indian Solar Imports
The United States recently took a significant step in challenging India’s policies, announcing preliminary tariffs of 126% on solar equipment imported from India. This decision, made on Wednesday, February 25, 2026, followed a conclusion by the US Department of Commerce that the Indian solar industry had received unfair government subsidies. Bloomberg reports that these steep duties are expected to significantly hinder the ability of Indian solar manufacturers to compete in the US market.
The US action underscores a growing trend of protectionist measures as countries seek to safeguard their domestic industries. The solar industry has become a focal point in international trade disputes, with concerns over unfair competition and the impact of subsidies on market prices. The preliminary tariffs will be subject to further review and potential adjustments, but they signal a clear message from the US regarding its concerns about India’s trade practices.
China’s Challenge at the WTO
Simultaneously, China has initiated a formal dispute at the World Trade Organization (WTO) challenging India’s incentive schemes for the automotive and renewable energy sectors. Beijing argues that these schemes unfairly favor domestically produced goods, placing Chinese exporters at a disadvantage. The WTO’s dispute settlement body agreed to form a panel to review China’s complaint after initial consultations between the two countries failed to resolve the issue. Al Jazeera details how this panel will investigate whether India’s policies violate WTO rules on subsidies and trade.
The WTO dispute mechanism involves a multi-stage process, beginning with consultations and potentially leading to the formation of a panel, followed by a review of the panel’s findings and potential appeals. China’s challenge highlights the growing tensions over trade practices and the increasing use of the WTO to resolve disputes. The outcome of this case could have significant implications for India’s trade relations with China and other WTO members.
India’s Defense and Broader Context
Indian officials, as reported by Bloomberg, maintain that the PLI schemes are consistent with WTO regulations and are designed to promote domestic manufacturing and economic growth. They intend to vigorously defend their policies before the WTO panel. The government views these initiatives as crucial to achieving its goal of increasing the manufacturing sector’s contribution to India’s gross domestic product (GDP) to roughly 25%. Currently, manufacturing accounts for approximately 17% of the Indian economy.
Economists like Biswajit Dhar, a New Delhi-based trade economist and former professor at Jawaharlal Nehru University, emphasize the importance of schemes like the PLI for revitalizing India’s manufacturing sector. However, Dhar similarly suggests that India needs to explore alternative ways to support industries, such as increased investment in technology and innovation. “Without schemes like PLI, revival of manufacturing looks tough,” he stated, highlighting the need for a multifaceted approach to industrial development.
This trade friction occurs as India simultaneously attempts to strengthen its relationships with both the United States and China. Recent agreements have helped to resolve trade tensions with the US, which previously imposed some of the steepest tariffs on Indian economies. At the same time, India continues to operate towards improving ties with Beijing, despite ongoing border disputes and geopolitical competition. Balancing these relationships will be a key challenge for Indian policymakers in the coming years.
Global Scrutiny of Subsidies
It’s important to note that the United States and China are themselves under scrutiny for their own subsidy policies. In 2024, China challenged aspects of the US Inflation Reduction Act of 2022, arguing that certain subsidies were unfairly tied to domestic production and disadvantaged Chinese goods. European nations have accused China of relying on large-scale subsidies to accelerate the growth of its electric vehicle and solar manufacturing industries. This demonstrates a global trend of increasing scrutiny over government subsidies and their impact on international trade.
Key Takeaways
- India’s “Make in India” initiative is facing challenges from the US and China over its domestic subsidy policies.
- The US has imposed preliminary tariffs of 126% on Indian solar imports, citing unfair government support.
- China has initiated a dispute at the WTO, alleging that India’s incentive schemes discriminate against Chinese exporters.
- India maintains its policies are consistent with WTO regulations and are crucial for economic growth.
- The global landscape is witnessing increased scrutiny of government subsidies and their impact on international trade.
The WTO panel’s review of China’s complaint is expected to grab several months, with a final ruling potentially coming in late 2026 or early 2027. The outcome of this dispute will likely shape India’s trade policies and its relationships with key trading partners. As India continues to pursue its ambitious manufacturing goals, it will need to navigate these challenges carefully to ensure a level playing field and maintain its position as a growing global economic power.
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