How India’s Industrial Policy Fuels the Global Subsidy Race
On your mark, get set...tariff!
India’s industrial policy, driven by tariffs, production-linked incentives, and domestic content requirements, reflects a broader global shift toward protectionism as major economies engage in a tit-for-tat subsidy race to secure strategic industries.
India has increasingly leaned on three industrial policy pillars to bolster domestic manufacturing: production-linked incentives (PLIs), tariffs, and domestic content requirements (DCRs).
This approach reflects a broader shift in India’s trade strategy, which over the past decade has prioritized import substitution to reduce dependence on foreign goods and strengthen local industry.
The evolution of India’s tariff structure underscores this trend. The simple average tariff rate climbed from 12% in fiscal year (FY) 2011 to 13% in FY 2015 and further to 14.3% in FY 2021.
Notably, India’s tariffs now stand higher than those of many competing economies, particularly for non-agricultural products. Moreover, the share of tariff lines with zero duties remains relatively low, underscoring India's reluctance to fully liberalize its market.
This protectionist stance extends beyond tariffs. As the Council on Foreign Relations notes:
"The Domestically Manufactured Iron and Steel Products policy requires the government to give preference for procurement to steel and iron products with a minimum of 15 to 50 percent value addition. That is to say, if the lowest bidder is a domestic supplier, the supplier is awarded the contract for the full amount. However, if the lowest bidder is a foreign supplier, only 50 percent of the contract quantity is awarded, while the remaining is awarded to the lowest bidder among the domestic suppliers."
While such measures challenge established trade norms, they are consistent with the global resurgence of protectionism. Industrial policies are not only proliferating but also constituting a growing share of national economic strategies. India is hardly an outlier.
Major trading partners have embraced similarly ambitious frameworks: the United States with its CHIPS and Science Act, Inflation Reduction Act, and Infrastructure Investment and Jobs Act; China with its Made in China 2025 initiative; and the European Union with its Green Deal Industrial Plan.
Globally, subsidies have emerged as the most prevalent form of industrial intervention, accounting for over half of all industrial policy measures in 2023. Between 2011 and 2019, China, the EU, and the U.S. collectively implemented 11,861 subsidy changes and awards, with an additional 3,754 recorded between 2020 and 2021 alone.
This surge has triggered a tit-for-tat cycle. Once one economy introduces subsidies, others typically follow within six months, fueling an escalating global subsidy race that further entrenches protectionist practices. India’s industrial policies, therefore, are not an isolated phenomenon but part of a broader pattern reshaping global trade dynamics.