India's efforts to increase localisation in electric vehicle and battery manufacturing have drawn international attention, with China raising a formal complaint at the World Trade Organization (WTO) regarding New Delhi's subsidy policies.

At a time when the automotive and cell manufacturing industries are requesting additional incentives for localisation, China filed a complaint against India at the WTO, alleging that subsidies for electric vehicle (EV) and battery cell manufacturing contravene global trade rules.

According to a statement from China's Ministry of Commerce, China requested consultations with India at the WTO regarding India's subsidy measures in the electric vehicle and battery sectors. Requesting consultations constitutes the first step in the WTO dispute settlement process.

India provides subsidies to promote the adoption of electric vehicles and supply chain localisation through the PM E-Drive and production-linked incentive (PLI) schemes for automotive, component, and cell manufacturing.

These incentives are contingent upon domestic value addition criteria, which require a specified level of localisation and domestic production within a product.

China alleges that these subsidies violate India's WTO obligations, citing breaches of the national-treatment clause and several other rules.

Beijing regards these incentives as import-substitution subsidies, which are prohibited under WTO regulations, and asserts that they provide India with a competitive advantage.

The statement indicated that China will take measures to safeguard the "lawful rights and interests of domestic industries."

It further noted that India's trade and economic measures have been under scrutiny for some time and have raised concern among member states.

Through this complaint, China appears to be invoking WTO provisions on the National Treatment Obligation, which prohibits discrimination against imported products, and the rule against Prohibited Import Substitution Subsidies, which addresses incentives contingent upon the use of domestic rather than foreign goods.

Additionally, Beijing may invoke the Subsidies and Countervailing Measures (SCM) Agreement, which challenges subsidies that are specific to certain enterprises or industries, cause adverse effects to the interests of other members, or distort trade and competition.

China's current position in the electric vehicle supply chain, particularly in several critical technologies and components, has raised international concern.

This control includes essential materials such as heavy rare earth magnets, required for high-performance EV motors, as well as key stages of the manufacturing process, including advanced cell technology and lithium processing.

This concentration poses geopolitical and economic risks for countries seeking to develop electric mobility. Recently, Beijing imposed export restrictions on heavy rare earth magnet exports.

Last week, it introduced new export controls on components of the lithium-ion battery supply chain, including high-performance lithium batteries and cathode and graphite anode materials.

Countries are pursuing strategies to diversify supply chains and increase domestic production capabilities. These measures aim to reduce reliance on a single source and to establish localised production ecosystems for EVs and their components.

China has approached the WTO while the Indian Government is developing a scheme to provide subsidies supporting domestic "end-to-end" magnet production, covering processes from rare earth oxide to finished magnets.