Full Breakdown
Global Trade Tensions Challenge India's Manufacturing Ambitions
2/27/2026, 5:45:40 AM
Trade Disputes Over Subsidies
Indian Prime Minister Narendra Modi's initiative to transform India into a global manufacturing hub is facing significant challenges from major economies, particularly the United States and China. On February 25, 2024, the U.S. imposed preliminary duties of 126% on solar imports from India, citing unfair subsidies that violate global trade norms. This decision is expected to severely restrict Indian solar panel manufacturers' access to the U.S. market. The U.S. action coincided with the World Trade Organization (WTO) establishing a panel to investigate China's complaint against India's production-linked incentive (PLI) scheme, which is designed to promote domestic manufacturing across various sectors, including automotive and renewable energy.
The PLI scheme, launched in 2020, has a budget of 1.91 trillion rupees (approximately S$26.5 billion) and aims to increase manufacturing's contribution to India's GDP from the current 17% to around 25%. Critics argue that the subsidies provided under this scheme create an uneven playing field, favoring local producers such as Waaree Energies, Adani Enterprises, and Reliance Industries. In response to these allegations, Indian officials assert that the PLI scheme complies with WTO regulations and are prepared to defend it vigorously.
Economic Implications
The mounting pressure from the U.S. and China poses a significant challenge for India as it seeks to bolster its manufacturing sector. Dr. Biswajit Dhar, an independent trade economist, emphasized the importance of the PLI scheme for the revival of manufacturing in India, stating, “Without schemes like PLI, revival of manufacturing looks difficult.” However, he also suggested that India should explore alternative support mechanisms, such as investing in technology and innovation, to sustain its manufacturing ambitions.
Criticism from Trading Partners
The scrutiny of India's subsidy programs comes at a time when India is attempting to stabilize its relationships with both the U.S. and China. Following a period of heightened trade tensions, New Delhi and Washington recently reached an agreement to resolve ongoing trade disputes. Meanwhile, India is also working to mend ties with Beijing after relations deteriorated due to border clashes in 2020. Both the U.S. and China have faced their own criticisms regarding subsidy practices, with China challenging provisions of the U.S. Inflation Reduction Act of 2022, which it claims discriminate against Chinese products.
Verbatim Quotes
- “Without schemes like PLI, revival of manufacturing looks difficult,” — Dr. Biswajit Dhar, Independent Trade Economist
- “However, officials in New Delhi, who declined to be identified discussing a sensitive matter, said India would strongly defend its incentive programmes, arguing they fully comply with WTO rules.” — Unnamed Indian Official
Conclusion
As India navigates these complex trade dynamics, the future of its manufacturing sector remains uncertain. The government's ability to adapt its strategies in response to international pressures will be crucial in determining whether it can achieve its ambitious economic goals.
