US and China Challenge India's 'Make in India' Initiative Over Subsidy Disputes
Prime Minister Narendra Modi's ambitious 'Make in India' campaign, aimed at transforming India into a global manufacturing powerhouse, is encountering significant pushback from the United States and China. As the world's two largest economies, both nations have raised objections, arguing that India's subsidy policies contravene international trade regulations. This development poses a challenge as India, currently the fifth-largest economy globally, strives to ascend to the third position in the coming years.
Production-Linked Incentives at the Heart of the Conflict
Central to the disputes is India's production-linked incentive (PLI) programme, launched by the Modi government in 2020 to bolster domestic manufacturing. With a total allocation of ₹1.91 trillion (approximately $21 billion), the scheme spans 14 key industries, including electronics, pharmaceuticals, solar equipment, and medical devices. According to a Bloomberg report, trading partners contend that these incentives provide an unfair advantage to Indian companies over foreign competitors, distorting market dynamics.
In the solar sector, firms such as Waaree Energies Ltd., Adani Enterprises Ltd., and Reliance Industries Ltd. have notably benefited from government support through PLI and various non-tariff measures. This has led to a significant surge in India's solar production, but it has also attracted scrutiny from international players.
Escalating Trade Tensions and WTO Involvement
The United States recently imposed preliminary tariffs of 126% on solar equipment imported from India, citing unfair government support that disadvantages American manufacturers. Analysts predict these steep duties could hinder Indian solar manufacturers' ability to compete effectively in the US market, potentially stalling growth in this critical sector.
Simultaneously, the World Trade Organization's dispute settlement body has formed a panel to review China's complaint against India. Beijing alleges that India's incentive schemes for the automotive and renewable energy sectors favor domestically produced goods over imports, placing Chinese exporters at a disadvantage. This panel was established after initial consultations failed to resolve the objections, marking a significant escalation in the trade dispute.
India's Defense and Strategic Implications
Indian officials have stated their intention to vigorously defend the incentive programmes, maintaining that they are fully compliant with WTO regulations. These initiatives are pivotal to India's strategy of increasing manufacturing's contribution to gross domestic product from the current 17% to approximately 25%, a goal seen as essential for economic growth and job creation.
Biswajit Dhar, a New Delhi-based independent trade economist and former professor at Jawaharlal Nehru University, emphasized the importance of such schemes, noting, "Without schemes like PLI, revival of manufacturing looks difficult." He also suggested that India explore alternative support mechanisms, such as increased investment in technology and innovation, to sustain industrial growth amidst global criticism.
Broader Context and Global Subsidy Scrutiny
The criticism from the US and China emerges as India works to stabilize its relationships with both nations. New Delhi and Washington recently resolved months of trade tensions, while India has been actively seeking to improve ties with Beijing. However, the subsidy debate is not one-sided; both the US and China have faced their own scrutiny over similar policies.
In 2024, China challenged aspects of the US Inflation Reduction Act of 2022, arguing that certain subsidies unfairly disadvantage Chinese goods. Additionally, European nations have accused China of relying on extensive subsidies to boost its electric vehicle and solar manufacturing industries, highlighting a global pattern of trade disputes centered on state support.
As India navigates these complex international dynamics, the outcome of these disputes could significantly influence the future trajectory of the 'Make in India' initiative and India's broader economic ambitions on the world stage.
