NEW DELHI
: China has escalated its trade challenge to India at the World Trade Organization (WTO), seeking the establishment of a dispute settlement panel on production-linked incentive (PLI) schemes in New Delhi for automobiles, batteries and electric vehicles, arguing that they discriminate against imported goods by tying incentives to domestic value addition.
In a communication sent to the WTO on January 16, Beijing said that consultations held with India in November 2025 and January 2026 did not resolve its concerns, prompting it to formally request a panel under WTO dispute settlement rules. The request is expected to be discussed at the next meeting of the WTO’s dispute settlement body on January 27.
The case exacerbates trade tensions between India and China at a time when New Delhi is using industrial policy to reduce reliance on imports and build domestic manufacturing. A WTO ruling against India could force changes in PLI design across sectors, potentially changing the way emerging economies balance localization goals with global trade obligations.
PLI under four
The dispute focuses on three flagship schemes introduced by India as part of its broader “Make in India” strategy: the PLI scheme for Advanced Chemistry Cell (ACC) battery storage, the PLI scheme for automobiles and auto components, and the scheme to promote the production of electric passenger cars in India.
According to a WTO document reviewed by Mint, China has argued that incentives under these programs are conditional on the use of domestic goods over imported ones through domestic value-added requirements. Beijing says this violates India’s obligations under the General Agreement on Tariffs and Trade (GATT), the Agreement on Subsidies and Countervailing Measures (ASCM) and the Agreement on Trade-Related Investment Measures (TRIMs).
China said in its submission that India’s PLI system for advanced chemical batteries, announced in June 2021 with an expenditure of ₹18,100 crore, requires recipient firms to gradually meet domestic value addition targets – starting at 25% within two years and rising to 60% within five years.
These thresholds, China argued, effectively link subsidy eligibility and amount to the use of domestically produced inputs, amounting to prohibited import substitution subsidies under WTO rules.
Beijing has also questioned India’s electric passenger car scheme, which was introduced in March 2024 to attract global EV makers. The scheme allows approved companies to import fully manufactured electric cars at a reduced duty of 15% for a limited period, subject to investment commitments and local production milestones.
Approved applicants are required to achieve 25% domestic value-added by the third year and 50% by the fifth year – conditions that China says discriminate against imported goods and violate national treatment obligations.
According to the WTO document, China argued that although these programs are presented as industrial policy measures to build domestic capacity and reduce import dependence, their design and operation have the effect of nullifying or impairing China’s benefits from WTO agreements. It therefore sought to establish a panel with a standard mandate to examine the measures in detail.
India has not yet issued a formal response to the panel’s request. However, in previous WTO disputes, New Delhi has defended its manufacturing incentive programs as consistent with global trade rules and necessary to address structural gaps in manufacturing, particularly in strategic sectors such as electric mobility, batteries and renewable energy technologies.
