Why in the News?
China has lodged a formal complaint at the World Trade Organisation (WTO) alleging that India’s Production-Linked Incentive (PLI) schemes for Advanced Chemistry Cell (ACC) batteries, Automobile and Auto Components, and Electric Vehicles (EVs) violate WTO subsidy rules.
About the Production Linked Incentive (PLI) Scheme:
- Overview: Launched in 2020 under the Atmanirbhar Bharat initiative to strengthen domestic manufacturing and global competitiveness.
- Objectives:
- Provides financial incentives based on incremental sales of manufactured goods over a base year.
- Aims to attract global investment, enhance exports, create jobs, and integrate MSMEs into value chains.
- Coverage: Covers 14 strategic sectors, including electronics, autos, solar modules, textiles, and pharmaceuticals.
- Incentive Design: Incentives are non-export linked, based on domestic sales and value addition achieved within India.
PLI Schemes Challenged by China:
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Issues Raised by China at WTO:
- Complaint: In October 2025, China filed a case at the World Trade Organization (WTO) claiming that India’s PLI schemes violate global subsidy and trade rules.
- Core Allegation – DVA Linkage:
- The Domestic Value Addition (DVA) requirement in the PLI scheme, where incentives depend on how much of a product’s value is created within India, is the main point of dispute.
- China argues that by linking financial incentives to DVA thresholds, India is indirectly forcing firms to use locally made components instead of imported ones.
- This, China claims, acts as a “local content requirement”, which WTO rules prohibit because it discriminates against imported goods, especially Chinese batteries, auto parts, and electronic components.
- Why China Objects to DVA:
- According to China, the PLI design discourages import of foreign components, making it harder for Chinese products to compete in the Indian market.
- It considers DVA-based incentives as “import substitution subsidies”, banned under the WTO’s Agreement on Subsidies and Countervailing Measures (SCM).
- China also claims this approach distorts trade, reduces fair competition, and restricts market access for foreign suppliers.
- Summary of the Dispute:
- China’s view: DVA = hidden import restriction → violates WTO rules.
- India’s view: DVA = measure of domestic value creation → fully WTO-compliant.
WTO Rules Cited by China:
- Subsidies and Countervailing Measures (SCM) Agreement:
- Article 1 – Defines subsidy as a financial benefit given by a government.
- Article 3.1(b) – Bans subsidies that depend on using domestic goods over imports.
- GATT 1994 (General Agreement on Tariffs and Trade):
- Article III.4 – Ensures equal treatment for imported and domestic goods.
- TRIMs (Trade-Related Investment Measures) Agreement:
- Article 2.1 – Forbids policies that violate national treatment.
- Annex – Lists Local Content Requirements (LCRs) as WTO-inconsistent.
- China argues that India’s PLI incentives linked to DVA break all three rules and act as local content conditions.
India’s Response:
- WTO Compliance: India says PLI is WTO-compliant and does not force local sourcing.
- Clarification: DVA only measures economic value created in India, like labour, R&D, and innovation, not just use of local parts.
- Open for Global Firms: Foreign companies can join and freely import materials; PLI only rewards domestic value creation.
- Legal Justification: India cites GATT Article XX, allowing policies for environmental or developmental goals, especially for green tech like EVs and batteries.
- Policy Standpoint: India argues that industrial subsidies are a sovereign tool to fix trade imbalances and promote sustainable growth.
- WTO Procedure: India will first hold consultations with China (first step of dispute). If unresolved, a WTO panel may be formed, but no ruling will take effect soon as the Appellate Body is non-functional since 2019.
- Practical Impact: India can continue the PLI schemes while the dispute is pending.
| [UPSC 2023] Consider the following statements: Statement I: India accounts for 3.2% of global exports of goods. Statement II: Many local companies and some foreign companies operating in India have taken advantage of India’s ‘Production-linked Incentive’ scheme. Which one of the following is correct in respect of the above statements? (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I (b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I (c) Statement-I is correct but Statement-II is incorrect (d) Statement-I is incorrect but Statement-II is correct * |
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