India said on Tuesday it was investigating U.S. policies supporting solar panel makers, the latest move in an escalating row over renewable energy that has worsened already strained ties between the two countries.
The Obama administration said on Monday it was filing a second case at the World Trade Organization over the domestic content requirements in India's solar programme, which aims to ease chronic energy shortages in Asia's third-largest economy.
U.S. Trade Representative Michael Froman said making Indian solar developers use locally made equipment discriminated against U.S. producers and could hinder the spread of solar power.
Indian Trade Secretary Rajeev Kher said his country, too, had raised complaints about the United States at the WTO.
"We have clear evidence of 13 odd (U.S.) states which follow equally restrictive policies as they challenge against us," Kher told reporters. "So, we are examining those policies."
Kher said India was also probing possible dumping of solar equipment as well as China and a few other countries.
The trade spat between India and the United States follows the recent arrest and strip search of a female Indian diplomat in New York in connection with visa fraud charges.
The arrest prompted retaliatory measures against U.S. diplomats in India and plunged U.S.-India relations to their lowest point since India tested a nuclear device in 1998. With general elections due by May, politicians are under pressure to show that they do not pander to U.S. interests.
As coal and gas shortages and populist tariff regimes hobble the performance of thermal power stations, Indian solar equipment manufacturers such as Moser Baer India Ltd and Welspun Energy want to expand their capacity.
India has argued its solar policies are legal under WTO government procurement rules and last year imposed anti-dumping duties on Chinese and Indonesian solar equipment firms.
In addition to the United States, China and Indonesia, Indian solar power producers import equipment from Malaysia and Germany, industry officials said.