Amid US tariffs, China now goes to WTO against India over EV, auto incentives

China has formally lodged a complaint against India at the WTO (World Trade Organization), alleging that India’s PLI (Production Linked Incentive) schemes for advanced chemistry cell batteries, automobiles, and EV (electric vehicle) manufacturing violate global trade rules.

According to a WTO communication dated 20 October, China has sought consultations with India under the WTO’s dispute settlement mechanism, citing concerns that India’s measures favour domestic goods over imports and discriminate against products of Chinese origin.

Beijing contends that these measures breach India’s obligations under the SCM (Subsidies and Countervailing Measures) agreement, the GATT (General Agreement on Tariffs and Trade) 1994, and the TRIMs (Trade-Related Investment Measures Agreement).

The WTO letter states: "...as a consequence of the foregoing, the measures at issue appear to nullify or impair benefits accruing to China, directly or indirectly, under the cited agreements."

China has expressed its intent to receive India’s response and to agree on a mutually convenient date for consultations.

The complaint specifically targets three programmes maintained by India: the National Programme on Advanced Chemistry Cell Battery Storage, the PLI Scheme for Automobile and Auto Component Industry, and the Scheme to Promote Manufacturing of Electric Passenger Cars.

China alleges that the eligibility criteria and incentive disbursement conditions under these initiatives favour domestic production, thereby discriminating against imported Chinese goods — a claimed violation of the WTO principle of National Treatment, which requires that imported goods be treated no less favourably than like domestic products once they enter the domestic market.

Linking subsidies to domestic value addition (DVA) targets under these programmes allegedly restricts fair trade by incentivising use of Indian-made components over imports.

How to Make in India?

This challenge underscores the tension between India’s industrial policy initiatives under 'Aatmanirbhar Bharat' and 'Make in India', which seek to boost domestic manufacturing and reduce import dependence, and WTO rules designed to prevent discriminatory trade practices.

India and China are significant trading partners, with the trade relationship marked by a persistent trade deficit. In the fiscal year 2024-25, India’s exports to China declined by 14.5 per cent to $14.25 billion, while imports increased by 11.52 per cent to $113.45 billion, broadening India’s trade deficit with China to $99.2 billion.

China’s complaint comes amid its desire to expand electric vehicle exports to India, targeting a major new market given the size and growth of India’s auto sector. Chinese electric vehicle manufacturers, such as BYD, are seeking overseas markets as domestic overcapacity and price wars suppress local sales and profits.

Chinese EV exports rose 51 per cent year-on-year in the first eight months of 2025, but sales face challenges abroad, notably due to a 27 per cent tariff imposed by the European Union to curb Chinese EV imports.

In response, the Indian government has enacted policies such as the National Programme on Advanced Chemistry Cell Battery Storage with an outlay of Rs 18,100 crore for 50 GWh capacity to promote domestic cell production, aimed at reducing reliance on imports and lowering manufacturing costs.

Similarly, the PLI scheme for the Automobile and Auto Component Industry, approved in September 2021 with a budget of Rs 25,938 crore, supports domestic manufacturing of advanced automotive technology products, aiming to lower industry cost burdens and foster indigenous investment and job creation.

Moreover, the 2024 scheme to promote manufacturing of electric passenger cars aims to position India as a hub for advanced electric vehicle production by attracting global EV companies to invest and build facilities domestically.

The WTO dispute settlement process begins with consultations, and if these fail, China may request the establishment of a panel to adjudicate the claims. The case marks a significant test for India’s industrial incentives under the global trade framework, balancing national manufacturing ambitions with international trade obligations.

With PTI inputs