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.

India and China’s agreement to restart border trade through the Lipu Lekh Pass in Uttarakhand has come under fire in Nepal, as it lies in the contested Kalapani-Lipu Lekh-Limpiyadhura region, which is claimed by Nepal.

This development is “unexpected and unacceptable” to Nepal, but Kathmandu will not let it disrupt dialogue with India, said a leading member of Nepali Prime Minister K.P. Sharma Oli’s party, the Communist Party of Nepal-Unified Marxist Leninist.

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India and China took the decision on border trade during the August 18 and 19 visit of Chinese Foreign Minister Wang Yi to Delhi, at a time when South Block had also extended an invitation to the Nepali Prime Minister to visit India. There is growing pressure on Mr. Oli to take a firm position on Lipu Lekh.

‘Integral part of Nepal’

“We informed India about our position in 2015, 2018, and in 2019 [after India published a new map], conveying that Lipu Lekh is a part of Nepal’s sovereign territory as per the treaty of Sugauli. Therefore this kind of an agreement between India and China is unexpected and unacceptable to us,” said Pradeep Gyawali, CPN-UML deputy general secretary.

Nepal will soon send a diplomatic note on this subject, he said. Mr. Gyawali had served as Nepal’s Foreign Minister between 2018 and 2021, when Nepal and India had several tense exchanges over Kalapani, Limpiyadhura, and Lipu Lekh. The government of Nepal subsequently enacted an insignia depicting the territorial extent of Nepal, covering the contested triangular region.

India and China had agreed to restart border trade through the Lipu Lekh Pass in Uttarakhand, Shipki La Pass in Himachal Pradesh, and Nathu La Pass in Sikkim. A day later, Nepal responded, saying, “According to Nepal’s constitution, the area to the east of the Mahakali river including Limpiyadhura, Lipu Lekh and Kalapani are integral parts of Nepal.”

‘Long history of trade’

India responded saying that border trade between India and China through the Lipu Lekh Pass had started in 1954 and continued for decades. “This trade had been disrupted in recent years due to COVID and other developments and both sides have now agreed to resume it. As regards territorial claims, our position remains that such claims are neither justified nor based on historical facts and evidence,” MEA spokesperson Randhir Jaiswal said.

A day before Mr. Wang’s arrival, Foreign Secretary Vikram Misri paid a visit to Kathmandu and met a number of Nepalese officials including Foreign Minister Arzu Rana Deuba and Foreign Secretary Amrit Bahadur Rai. He also called on the Prime Minister and invited him to visit India. Mr. Oli has not been hosted by India since he took charge in July 2024. He visited China in December 2024, however, and is on track to participate in the Shanghai Cooperation Organisation’s summit meeting in Tianjin from August 31 to September 1.

Mr. Gyawali said Nepal will intensify its diplomatic consultation with India to emphasise its claims over Lipu Lekh. At the moment, however, Mr. Oli’s planned visit to India remain on track. “India and China are our two of the biggest partners and we have several development projects ongoing with both sides. Therefore this irritant will not be allowed to derail Prime Minister Oli’s plans to visit India. But we will certainly take up the issue firmly with India,” he said.