When China formally challenged India’s electric vehicle (EV) incentive schemes at the World Trade Organization (WTO) this October, it was more than a routine trade complaint. It was a statement — one that cuts to the heart of how developing nations can pursue green industrialization without being penalized by legacy trade rules.
Beijing argues that India’s EV incentive programs — from FAME II to the Production Linked Incentive (PLI) scheme for Advanced Chemistry Cells (ACC) — unfairly discriminate against foreign suppliers, particularly by rewarding domestic manufacturing. India, in contrast, believes these policies are necessary to promote self-reliance on clean transportation and reduce reliance on imports.
The result is a critical trade debate: should developing economies be allowed to focus on creating domestic value in green technologies, or must they open their markets completely, even if it stunts industrial development
India’s EV Policy Is Not Protectionism — It’s Industrial Pragmatism
India’s clean mobility programs are not about closing doors to foreign players. They are about opening doors for manufacturing at home. Under Atmanirbhar Bharat and Make in India, the government’s EV framework has one clear goal — to shift India from being a buyer of clean technologies to being a builder of them.
The PLI-ACC scheme, for example, offers incentives to companies that set up local gigafactories to produce lithium-ion and advanced chemistry batteries. It doesn’t ban imports; it simply rewards those who invest in Indian soil, generate jobs, and reduce carbon leakage from long global supply chains.
The FAME II program, which helps boost EV adoption through subsidies on locally assembled vehicles, was developed to help create a balance between consumer incentives and the growth of the industry itself. This approach mirrors what China itself did during the 2010s, when it became the world’s largest EV producer by nurturing its own ecosystem with massive state subsidies and strict localization rules.
If that model was acceptable then, it’s contradictory for China to challenge a similar playbook today.
China’s WTO Case Is About Market Power, Not Fairness
At the WTO, China’s complaint hinges on “national treatment” — the rule that a member state cannot favor local products over foreign ones. Beijing claims India’s incentives distort competition and shut out Chinese exporters of batteries and components.
But let’s call it what it is: a strategic maneuver, not a moral argument.
China controls approximately over 75% of global battery cell manufacturing, 70% of cathode and anode production, and nearly 60% of EV component exports. India, by comparison, is just beginning to scale its capacity, aiming to build around 50–100 GWh of domestic battery production by 2030.
For India to rely indefinitely on imports from China — the very nation now challenging it — would be economically unsound and geopolitically risky. The current policy framework isn’t anti-China; it’s pro-India.
Beijing’s WTO challenge must be seen as a pushback against India’s growing assertiveness in reducing Chinese dominance in clean technology supply chains.
India’s Right to Green Industrialization Must Be Defended
India is within its rights to pursue strategic localization under WTO rules — especially as a developing nation with sustainability obligations.
The WTO framework was drafted for a fossil-fuel economy, not a decarbonizing one. The same regulations that previously kept unfair trade practices of industrial subsidies at bay is once again in jeopardy of punishing climate initiatives.
Article XX of the GATT states that measures to protect the environment and conserve natural resources are allowed, and armed with that information, India can argue that its domestic EV manufacturing is not protectionism; it is simply doing what is right for the environment.
Moreover, India’s programs do not block market access. They invite it — under the condition that technology transfer, local value addition, and job creation happen domestically. Several multinational players, including Hyundai, Ola Electric (with international supply partnerships), and Tesla, have already welcomed this model as a path to long-term sustainability rather than quick market entry.
This is not the behavior of a protectionist economy. It’s the strategy of a developmental state that understands the climate economy’s stakes.
A Smarter Response: Refine, Don’t Retreat
Still, India cannot afford to appear defiant for the sake of defiance. The challenge should work as an alarm to improve, not retreat from, industrial policy.
Clarify Eligibility for Incentives:
The challenge should inspire us to improve, instead of reversing, industrial policy.
Define Incentive Eligibility:
India can boost transparency in its EV incentive programs by establishing that they should be merit based rather than origin-based. If a company, Indian or foreign, manufactures locally and meets environmental and quality specifications, it should be eligible — a principle that is already implicit in FAME and PLI.
Build Coalitions with Developing Nations:
Other emerging economies — such as Indonesia, Brazil, and South Africa — are also grappling with similar trade frictions over green industrialization. India can bring them together in support of the WTO Green Development Clause to acknowledge the right of developing countries to develop clean industries in return for conditional incentives.
Broaden Global Partnerships:
Rather than framing localization as isolation, India can build collaborative joint ventures and technology-sharing partnerships with friendly economies. Framing deals with economies like the EU, Japan, and the US through the Indo-Pacific Economic Corridor may provide diplomatic balance and depths of investment.
Future-Proof Policy Language:
Policymakers must ensure that incentive frameworks like FAME III and PLI 2.0 for EV Components are written with WTO-compliant terminology — focusing on sustainability outcomes rather than domestic content ratios.
Invest in Raw Material Security:
India should simultaneously accelerate its battery recycling and critical mineral refining capacity. That will reduce dependency on imports from any one nation and strengthen the environmental case for local value creation.
The Larger Lesson: Climate Policy Is Economic Policy
What China’s WTO move reveals most clearly is that the green economy is now the new industrial battleground. Every nation — from the US with its Inflation Reduction Act (IRA) to the EU’s Green Industrial Plan — is using subsidies, tax breaks, and localization requirements to protect and grow domestic clean-tech industries.
Why, then, should India be the exception?
With EV adoption accelerating and domestic sales projected to exceed 2 million units in FY2025, India cannot afford to surrender its industrial momentum. A strong local manufacturing base doesn’t just create jobs; it builds resilience, supply-chain control, and climate accountability.
Instead of retreating under pressure, India should treat this WTO challenge as an opportunity to articulate a new global principle: that developing nations must have the freedom to pursue sustainable industrialization, even if it involves conditional incentives.
Conclusion: Turn the Challenge into a Charter
China’s challenge to India at the WTO is not an impediment — it is a formative challenge. It requires India to be clear about its vision for clean mobility, one based on sovereign capacity, fair trade and environmental necessity.
India should be resolute, defend its right to green industrial development, and promote the necessity of a fairer global trade system that allows for climate action to be a legitimate industrial policy.
If properly handled, this case could be an opportunity to do more than preserve India’s EV incentives – it could be a catalyst for a new trade model, one focused on clean mobility and developing autonomous economies.
Because at the end of the day, India’s EV journey is not solely about driving cleaner vehicles — it is about driving a global conversation forward about what sustainable developent actually means in the 21st century.
Click Here to get the latest EV news and exclusive updates from EV Mechanica on WhatsApp!