Just as signs of a possible thaw emerged in India-China relations, the two countries have stumbled into another dispute — this time over EV subsidies. China, the world’s largest producer of EVs, has filed a complaint at the World Trade Organisation, alleging that India’s subsidy regime discriminates against foreign firms. For Beijing, the issue is not just about trade fairness — it is about gaining a foothold in one of the fastest-growing EV markets.
India, meanwhile, views its green industrial policy as essential to energy security and climate resilience. With 80% of its crude oil imported, the shift to cleaner transport is not merely an environmental goal but an economic necessity. The government’s Production Linked Incentive (PLI) schemes for automobiles and advanced chemistry cell batteries, along with the Faster Adoption and Manufacturing of Electric Vehicles (FAME) programme, seek to build a local manufacturing base and reduce import dependence.
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The larger question now is whether countries can promote green industries without breaching global trade rules—and whether China’s complaint is rooted in legal principle or commercial expediency.
China’s challenge and India’s dilemma
China’s ministry of commerce has accused India of violating the WTO’s national treatment clause, which mandates equal treatment for imported and domestic goods. It contends that India’s EV incentives amount to prohibited “import-substitution subsidies” under the WTO’s Agreement on Subsidies and Countervailing Measures (SCM Agreement).
Beijing’s timing is strategic. With massive overcapacity in its EV sector and weakening domestic demand, China is aggressively scouting new markets in Asia and beyond. India, with annual car sales exceeding three million units, represents a prime opportunity. A WTO challenge allows Beijing to test India’s industrial policy while pushing its own exporters’ interests.
For New Delhi, the issue is existential. The PLI framework’s design encourages local value addition and restricts the sale of fully built imported vehicles. In effect, it seeks to foster domestic manufacturing capabilities rather than act as an outright trade barrier.
The EV dispute cannot be divorced from the broader currents shaping India–China economic relations. Trade between the two nations exceeds $115 billion annually, but the imbalance remains glaring — India imports six times more from China than it exports. New Delhi’s policy of “de-risking” supply chains, seen in moves to curtail imports of telecom gear, solar panels, and electronics, has not gone unnoticed in Beijing. The WTO complaint, therefore, reflects not merely a trade grievance but a strategic counter to India’s drive for technological self-reliance. The contest over EVs is fast becoming another front in a long-running tug-of-war between security concerns and economic pragmatism.
Domestic constraints on a green push
India’s success in defending its EV policy will also depend on the depth of its domestic manufacturing ecosystem. While the PLI schemes promise localisation, India continues to rely heavily on Chinese imports for advanced chemistry cell batteries, rare earth magnets, and electronic controllers — the very backbone of EV technology. The domestic supply chain for these inputs remains underdeveloped, and private investment in mineral processing and battery recycling is nascent. Unless India rapidly builds this upstream capability, it risks both economic vulnerability and the perception that its localisation goals are protectionist rather than capability-driven.
Historical precedents, however, suggest that the WTO may not be in favour of India. Nearly a decade ago, the United States successfully challenged India’s local content requirements under the National Solar Mission, forcing India to amend its policy. Similarly, Canada’s Ontario Renewable Energy programme was struck down for privileging domestic inputs in wind and solar projects. In both cases, WTO panels ruled that environmental objectives could not override the organisation’s non-discrimination principle.
These precedents suggest that India faces an uphill battle. Yet they also provide guidance on how to design industrial policy without crossing WTO red lines.
Crafting a credible defence
India’s argument will likely hinge on two points. First, that its subsidies are performance-based — linked to production, investment, and localisation milestones — rather than tied to the use of domestic over imported goods. Under WTO rules, only subsidies explicitly contingent on domestic sourcing are prohibited. Since global firms like Hyundai, Suzuki, and several foreign battery makers can qualify for incentives if they manufacture locally, India can argue that its programme is non-discriminatory.
Second, India may invoke the environmental exceptions under Article XX of the General Agreement on Tariffs and Trade (GATT), citing public health and resource conservation goals. The EV transition is integral to reducing air pollution and curbing fossil fuel imports. However, WTO jurisprudence demands that such measures not amount to disguised protectionism. India will need to demonstrate that its intent and implementation are climate-driven, not commercially restrictive.
As a developing economy, India could also seek “special and differential treatment” under WTO provisions, arguing for greater flexibility to nurture sunrise industries. This may not exempt it from scrutiny but could strengthen its negotiating leverage during consultations.
Reforming outdated trade rules
The case reveals a deeper structural issue: WTO subsidy rules, written in the 1990s, are ill-suited for the era of climate urgency. They were designed to prevent trade distortions in traditional manufacturing, not to guide the global green transition.
This dispute also mirrors the widening global subsidy race in clean technology. From Washington to Brussels, governments are bending WTO norms to secure industrial advantage in the energy transition. The United States’ Inflation Reduction Act has already triggered retaliatory concerns among its allies, while the European Union’s Green Deal Industrial Plan allows national subsidies for local EV and battery production. Far from being an outlier, India’s policy is a modest response to this protectionist wave. The world’s trading system is fragmenting into industrial blocs, where strategic autonomy increasingly outweighs multilateral discipline.
China itself faces similar scrutiny, as the EU has imposed anti-subsidy tariffs on its EV exports. This parallel predicament could prompt both Beijing and New Delhi to seek a negotiated settlement rather than escalate into a trade war.
There is still room for diplomacy. Both nations sit within groupings such as BRICS and the Shanghai Cooperation Organisation, where clean-energy cooperation and green finance have become recurring themes. Instead of litigating through Geneva, India and China could explore a pragmatic framework for technology sharing or joint ventures in EV manufacturing. A cooperative approach would align with their stated climate goals and help de-escalate an already fragile bilateral relationship. Such coordination, however tentative, may prove wiser than deepening trade antagonism in an uncertain global economy.
EV subsidies: The policy imperative
For India, losing the case could force adjustments in its subsidy architecture, dampen investor confidence, and invite further challenges from other trading partners. Yet it may also catalyse a more refined, WTO-compliant industrial strategy—one that still mobilises investment while navigating global rules deftly.
Beyond the corridors of Geneva, the outcome of this dispute carries direct implications for India’s consumers and cities. If trade frictions delay local production or discourage investment, EV prices could stay high and adoption sluggish. That would undermine India’s 2030 target of having 30% of all new vehicle sales electric and slow progress on urban air quality, where transport remains the single biggest source of particulate pollution.
Industrial strategy and environmental policy, though framed separately, are thus two sides of the same coin—and both must advance together for India’s green mobility goals to succeed.
The broader takeaway is clear: the world’s trade regime must evolve to accommodate climate action. Developing nations cannot be penalised for pursuing energy transition and industrial resilience. Until the WTO modernises its framework, countries like India will continue to operate in a policy grey zone—where climate ambition risks clashing with trade legality.