India’s strategy to transform itself into a global manufacturing hub is encountering renewed resistance from two of the world’s largest economies, underscoring the geopolitical complexity of industrial policy in an era of rising trade protectionism. Fresh actions by the United States and China against India’s incentive regime signal that New Delhi’s subsidy-led push could increasingly face legal and commercial barriers abroad.

On Wednesday, the United States imposed preliminary duties of 126% on solar imports from India after concluding that domestic manufacturers received unfair government subsidies. The move is widely expected to make Indian solar modules commercially unviable in the US market, effectively shutting out exporters in the near term. The development comes even as India had recently attempted to stabilise trade ties with Washington after a period of elevated tariffs and disputes.

The tariff action follows another setback at the multilateral level. A day earlier, the World Trade Organization agreed to establish a dispute panel to examine China’s complaint that India’s manufacturing incentives discriminate against foreign goods. Beijing argues that India’s policy framework for sectors such as automotive and renewable energy gives domestic producers an unfair advantage over imports. The panel was constituted after bilateral consultations failed to resolve the dispute, marking the formal start of WTO adjudication proceedings.

At the centre of both disputes is India’s production linked incentive scheme, launched in 2020 to boost domestic manufacturing capacity and reduce import dependence. Covering 14 sectors including electronics, pharmaceuticals, solar equipment, and medical devices the program involves government support worth approximately ₹1.91 trillion. The policy is a cornerstone of the government’s broader ambition to increase manufacturing’s share of GDP from about 17% currently to roughly 25% over time.

Trading partners argue that the incentives distort competition by favouring locally produced goods. In the solar segment, major Indian companies have expanded capacity with policy support and protective measures such as domestic content requirements. However, export-oriented growth strategies could now face obstacles if key markets impose countervailing duties or initiate formal trade disputes.

India has signalled it will defend its programs vigorously. Officials have indicated that the incentive schemes comply with WTO rules and are necessary to build domestic industrial capability. Economists note that without policy support, India may struggle to revive manufacturing at scale, especially against heavily subsidised competitors in other countries. At the same time, the disputes highlight the need for complementary investments in technology, productivity, and innovation rather than relying solely on fiscal incentives.