Why is India’s trade deficit with China a concern? What is the risk of increasing dependence? | Explained

The bilateral trade between India and China has been growing at a healthy rate, but the trade gap remains sharply tilted in Beijing’s favour.

India has time and again flagged its concern over the ballooning trade deficit and the non-trade barriers faced by Indian goods in the Chinese market.

PM Modi’s visit to Japan and China

On August 29, Prime Minister Narendra Modi said it is important for India and China to work together to bring stability to the world economic order as he asserted that New Delhi is ready to advance bilateral ties from a strategic and long-term perspective based on mutual respect, mutual interest and mutual sensitivity.

A list of questions and answers to understand the trade-related issues between the two countries:

How much is the bilateral trade between India and China?

During April-July 2025-26, India’s exports rose by 19.97% to $5.75 billion, while imports increased by 13.06% to $40.65 billion. In 2024-25, India’s exports stood at $14.25 billion, while imports were $113.5 billion.

Trade deficit (difference between imports and exports) rose from $1.1 billion in 2003-04 to $99.2 billion in 2024-25. China’s trade deficit accounted for about 35% of India’s total trade imbalance ($283 billion) in the last fiscal. The gap was $85.1 billion in 2023-24.

Why is the deficit with China a concern?

Because it is not only large, but also structural. What makes it more serious is that China now dominates India’s import baskets across virtually every industrial category — from pharmaceuticals and electronics to construction materials, renewable energy, and consumer goods , according to think tank GTRI.

For which key products China’s share is over 75%?

GTRI analysis states that in antibiotics like erythromycin, China supplies 97.7% of India’s needs; in electronics, it controls 96.8 per cent of silicon wafers and 86 per cent of flat panel displays; in renewable energy, 82.7% of solar cells and 75.2% of lithium-ion batteries come from China.

Even everyday products such as laptops (80.5% share), embroidery machinery (91.4%), and viscose yarn (98.9%) are overwhelmingly Chinese-sourced.

What is the risk of increasing dependence on China?

GTRI Founder Ajay Srivastava says overwhelming dominance gives Beijing potential leverage against India, turning supply chains into a tool of pressure in times of political tension. The imbalance is deepening as India’s exports to China continue to decline, reducing India’s share in bilateral trade to just 11.2% today from 42.3% two decades ago.

However, according to the commerce ministry, most of the goods imported from China are raw materials, intermediate products and capital goods like auto components, electronic parts, mobile phone parts, machinery and active pharma ingredients. Thes are used for making finished products, which are also exported.

India’s dependence on imports in these categories is largely due to the gap in domestic supply and demand, the ministry said.

What steps India has taken to cut its import dependence?

Introduction of production linked incentive schemes for over 14 sectors to boost domestic manufacturing; stricter quality standards and measures for quality controls, testing protocols, and mandatory certification to check substandard and poor-quality products in the market and protect consumers’ interest.

The government encourages Indian business establishments to explore alternative suppliers to diversify their supply chains and reduce dependency on single sources of supply.

It also monitors the surge in imports on a regular basis and takes appropriate action. Further, the Directorate General of Trade Remedies (DGTR) is empowered to recommend trade remedial actions against unfair trade practices.

India has imposed anti-dumping duties on a number of Chinese goods and sectors such as chemicals to engineering items to protect domestic firms from cheap imports.

What is the impact of rising trade deficit?

Pressure on foreign exchange reserves, dependence on external suppliers, cheaper imports can hurt local manufacturers; can lead to currency depreciation pushing cost of imported goods, fuelling inflation; and over-reliance on imports reduces incentives for building domestic capacity in key sectors, slowing long-term industrial growth.