India must design subsidies that reduce the risk of trade disputes

Our subsidy policy should comply with global rules and we need to engage in rule-making talks

- R.V. ANURADHA

China has initiated a World Trade Organization (WTO) dispute over India's subsidies for electric vehicles (EVs), alleging that these are “prohibited subsidies.”

Countries across the globe are resurrecting industrial policies focused on self-reliance in manufacturing. Subsidies for domestic manufacturing are integral to such policies. Trade pacts, whether free trade agreements (FTAs) or those under the WTO, lay out two subsidy categories:

Prohibited subsidies: Those that are contingent on: (a) the use of domestic over exported products, or on (b) export performance. These are frowned upon as having a distortive impact on trade and can be challenged as illegal.

Actionable subsidies: These are directed at domestic producers or at incentivizing domestic production but are not linked to requirements for any specific domestic value addition or exports. Such subsidies could, however, be 'actionable.' This means that they may be countervailed by duties imposed by an importing country, but only subject to factual demonstration that such subsidies cause injury to its domestic industry.