PLI Scheme and WTO Dispute

11.12.2025

PLI Scheme and WTO Dispute

Context

A significant trade friction has emerged between India and China, with Beijing filing a formal complaint at the World Trade Organization (WTO). The dispute centers on India's flagship industrial policy, raising questions about international trade norms and domestic manufacturing incentives.

About the Dispute The Allegation:

• Core Argument: China contends that India’s Production Linked Incentive (PLI) scheme violates established WTO regulations.
• Import Substitution: Beijing argues that the scheme acts as an "Import Substitution Subsidy." They claim it unfairly subsidizes domestic production to replace Chinese imports, a practice they assert causes market disruption and breaches WTO rules on fair trade.

About PLI Scheme Launch and Origin:

• Timeline: The scheme was introduced in 2020.
• Geopolitical Context: It was rolled out shortly after the Galwan Valley incident, signaling a strategic move to reduce economic dependency on foreign nations, particularly China.

Mechanism:

• Incentive Structure: The government offers financial incentives to companies based on their incremental sales from products manufactured in domestic units.
• Target: It encourages companies to scale up local production of goods ranging from electronics (ACs, phones) to critical components (solar PV modules).

Objectives:

• Manufacturing Hub: To transform India into a global design and manufacturing hub.
• Economic Impact: To generate employment (create jobs), boost exports, reduce the import bill, and check currency depreciation.

Status Current Impact:

• Coverage: The scheme is currently active across 14 key sectors.
• Financials: It has attracted investments worth approximately ₹1.88 lakh crore.
• Employment: The initiative is credited with generating roughly 12 lakh jobs in the manufacturing sector.

Way Forward

• Legal Defence Strategy: India must vigorously defend the PLI scheme by demonstrating that the incentives are based on production outcomes rather than a legal requirement to use domestic goods over imported ones (local content requirements), thereby distinguishing it from prohibited subsidies.
• Policy Adaptation: The government should consider gradually shifting incentives towards Research & Development (R&D) and infrastructure development. These areas generally fall under WTO's "Green Box" subsidies and are less likely to attract litigation than direct production support.
• Global Coalitions: As other major economies like the US (CHIPS Act) and EU implement similar industrial policies, India should collaborate with these nations to push for a modernization of WTO rules that accommodates the new reality of supply chain resilience and strategic autonomy.

Conclusion

The WTO dispute highlights the complex friction between open global trade rules and national economic security. While the PLI scheme has been a catalyst for India's manufacturing revival, its long-term success will depend on navigating these legal challenges while ensuring that domestic industries become globally competitive without perpetual state support.