Key facts
- India's trade deficit with China reached $112 billion this year, up from $44 billion in 2020.
- China supplies over 30% of India's industrial imports, including over 100 critical products.
- India depends on China for components in sectors like smartphones and solar equipment, despite increased domestic assembly.
- Chinese manufacturers are increasingly selling goods cheaply to overseas markets due to excess capacity and a slowing domestic economy.
- Indian products face tariff and non-tariff hurdles in China, limiting export potential.
- India's trade deficit with China could jump to $134 billion if the current import pace continues.
India's trade deficit with China has ballooned to $112 billion this year, highlighting a deepening economic dependence despite strained political ties. While India has had some success in reducing reliance on finished goods like toys, its industrial sector remains heavily dependent on Chinese components and raw materials.
Experts note that China's excess manufacturing capacity and slowing domestic economy are driving down prices, making its goods attractive to India, which is rapidly expanding its own manufacturing base. This reliance on Chinese inputs, which account for over 30% of India's industrial imports, means that any disruption could impact India's production capabilities.
Despite border skirmishes in 2020 and subsequent anti-dumping duties and bans on Chinese apps, the trade imbalance has worsened. Prime Minister Narendra Modi and President Xi Jinping have acknowledged the issue and vowed to address structural trade imbalances. However, experts caution that this will be a formidable task given the deep entrenchment of Chinese imports in India's industrial economy.
Challenges for India include a lack of reciprocal market access in China, where Indian products face various trade hurdles. To address the asymmetry, India needs to strengthen its manufacturing sector with targeted industrial policies, affordable power, credit, efficient logistics, and stable regulations. While softening foreign direct investment rules could attract Chinese investment, approvals must prioritize technology transfer and local value addition to avoid deepening import dependence.