(UNI SPECIAL)
Abhijit Mukhopadhyay
New Delhi, Jun 16 (UNI) The Organisation for Economic Co-operation and Development (OECD)’s June 2026 MAGIC database report reinforces a fact that is not often highlighted: industrial subsidies are now a structural feature of global competition, not an exception, and these can materially distort markets when they are large, persistent, and targeted.
It can be derived from the data given in the report that Indian firms, like many others across the world, received substantially less government support compared to their Chinese counterparts during 2005-2024.
The OECD’s industrial subsidies report notes that subsidies can support a particular country’s policy goals, in this case, China. However, in the process, it also distorts trade and competition, depending on its design and targeting.
For India, the practical question is not whether China’s subsidy model can be changed from outside, but how India can protect its own firms, preserve policy space, and strengthen competitiveness without sliding into a defensive or purely retaliatory posture.
The correct response would be a mix of trade remedies, domestic capability building, smarter industrial policy, and stronger international coalitions. The OECD’s MAGIC database is useful precisely because it gives governments a firmer evidentiary base for these policy choices.
The main implication for India is that competition with Chinese producers is not always a contest between equally supported firms. If foreign competitors receive higher grants, tax concessions, or below-market finance, Indian firms may face a cost structure that is difficult to match through private effort alone.
That finally shows up in price pressure in imports, squeezed margins for domestic producers, and weaker incentives for investment in strategic sectors.
This does not mean India should mirror every foreign subsidy. However, it does imply that India should ensure that domestic policymaking does not leave Indian producers exposed to unfair asymmetries in the international market.
A forward-looking industrial strategy should therefore focus on resilience, scale, and productivity rather than simply matching subsidy levels rupee for rupee.
India already has a broad set of policies to support its businesses, but the challenge is to use them in a more targeted and evidence-based way. The first line of response should be trade defence: anti-dumping, countervailing duty, safeguard action, and close monitoring of import surges in sectors where subsidy distortions are most visible. These instruments should be used promptly where evidence supports them, because they create breathing space while domestic capacity adjusts.
The second area is domestic competitiveness. India can expand support for infrastructure, logistics, power reliability, skilling, testing, standards, and technology adoption, all of which lower unit costs without directly rewarding inefficiency.
In sectors such as electronics, chemicals, steel, renewable equipment, and critical minerals processing, predictable input ecosystems often matter more than headline subsidy size. A policy framework that reduces friction costs can do as much for competitiveness as a cash grant. Addressing residual reform questions may be a key factor.
The third line is smarter financial support. If public resources are deployed, they should be tied to measurable outcomes such as export capability, technology upgrading, energy efficiency, local value addition, and learning-by-doing.
That will keep the policy aligned with productivity and reduce the risk of long-term dependence on government support. India’s industrial policy can be made more credible if it is transparent, time-bound, and reviewed against clearly stated milestones.
A practical India strategy could rest on five pillars.
First, we have to build a live subsidy-monitoring cell that tracks import-intensive sectors, identifies likely distortions, and prepares evidentiary files for trade remedies. In simple words, if the products we heavily import are getting government subsidies in the country of origin, then we should take note immediately.
Second, India has to prioritise “strategically competitive” sectors where scale economies and supply-chain resilience matter most, including electronics, batteries, solar, specialty chemicals, pharmaceutical inputs, and advanced materials.
Third, India can use public finance to reduce core bottlenecks such as logistics, electricity costs, land access, and compliance burden rather than to sustain uncompetitive production. Channelling the government’s capital expenditures towards these areas can be one way.
Fourth, India must expand credit guarantees, export finance, and technology upgradation support for MSMEs that are embedded in global value chains.
Last but not least, India should actively work through alliances in the WTO and other forums with other economies that share concerns over subsidy transparency and overcapacity.
These measures are preferable to a simplistic direct subsidy race because they will strengthen India’s base without committing it to open-ended fiscal escalation. They also allow India to respond to unfair competition in a way that is consistent with its broader development objectives.
India should also use the OECD findings to sharpen its diplomatic and negotiating position. Even if China’s domestic policy is not directly alterable, the broader international environment can still be influenced through transparency, reporting standards, and coalition-building around subsidy discipline.
India has an interest in pushing for better disclosure of grants, tax expenditures, concessionary credit, and state-owned enterprises-linked support in multilateral settings.
Simultaneously, India can deepen coordination with partners that face similar market pressures. A shared evidence base makes it easier to discuss overcapacity, unfair pricing, and the need for level-playing-field safeguards without turning the debate into a purely geopolitical confrontation. That approach would be consistent with India’s preference for strategic autonomy and issue-based international cooperation.
From India’s perspective, the OECD MAGIC report should be treated as a signal to sharpen policy, but not to overreact. The goal is not to imitate the most heavily subsidised systems, but to create a more durable domestic production base that can compete on productivity, scale, and innovation.
India’s best answer to foreign subsidy asymmetry is a combination of evidence-based trade defence, better domestic infrastructure, targeted capability support, and active international engagement.
That approach is forward-looking, fiscally disciplined, and consistent with India’s long-term industrial ambitions. It also allows the government to respond constructively to domestic industry concerns without adopting an overtly confrontational tone.
(The writer is an economist. Views are personal.)
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