India-China Trade Deficit Expands to $99.2 Billion in 2024-25; New Delhi’s Strategy to Decrease Dependence

India and China have seen a steady increase in bilateral trade over the years, but the trade balance remains heavily tilted in favor of China, raising concerns in New Delhi. Prime Minister Narendra Modi recently emphasized the importance of collaboration between the two nations to stabilize the global economic landscape. He expressed India’s readiness to enhance bilateral relations based on mutual respect and shared interests. This article delves into the trade dynamics that are shaping the economic relationship between India and China.

Bilateral Trade Figures and the Expanding Deficit

In the period from April to July 2025-26, India’s exports to China surged by nearly 20%, reaching $5.75 billion. Conversely, imports from China also rose, albeit at a slower rate of 13%, totaling $40.65 billion. For the fiscal year 2024-25, India exported goods worth $14.25 billion to China, while imports soared to $113.5 billion. This significant trade imbalance has led to a widening deficit, which has ballooned from $1.1 billion in 2003-04 to an alarming $99.2 billion in 2024-25. Notably, China has contributed to approximately 35% of India’s total trade imbalance, which stood at $283 billion last fiscal year. The trade deficit was recorded at $85.1 billion in 2023-24, highlighting the ongoing challenges in achieving a more balanced trade relationship.

Concerns Surrounding the Trade Deficit

Experts have raised alarms about the structural nature of the trade deficit, noting that China dominates India’s import market across various sectors. According to the Global Trade Research Initiative (GTRI), China supplies over 75% of India’s requirements for several critical products. For instance, antibiotics like erythromycin are sourced 97.7% from China, while silicon wafers and flat panel displays account for 96.8% and 86%, respectively. This heavy reliance on Chinese imports extends to solar cells, lithium-ion batteries, and laptops, among others. GTRI Founder Ajay Srivastava cautions that such dependency grants China significant leverage over India, particularly during periods of political tension. Furthermore, India’s share of bilateral trade has decreased dramatically, falling from 42.3% two decades ago to just 11.2% today. The Indian commerce ministry has clarified that many imports from China consist of raw materials and intermediate products, which are essential for domestic manufacturing and exports.

Measures to Reduce Import Dependence

In response to the growing trade deficit, India has implemented several strategies aimed at reducing its reliance on Chinese imports. The government has introduced Production-Linked Incentive (PLI) schemes across more than 14 sectors to bolster domestic manufacturing capabilities. Additionally, stricter quality standards and testing protocols have been established to prevent substandard products from entering the Indian market. Authorities are actively encouraging Indian businesses to seek alternative suppliers to diversify their supply chains and minimize dependence on a single source. The Directorate General of Trade Remedies (DGTR) has been empowered to recommend measures against unfair trade practices, and India has imposed anti-dumping duties on various Chinese goods to protect local manufacturers from cheaper imports.

Implications of the Rising Trade Deficit

The escalating trade deficit poses significant challenges for India’s foreign exchange reserves and increases its dependence on external suppliers. While lower import costs may benefit consumers in the short term, they can adversely affect local manufacturers. Over-reliance on imports could lead to currency depreciation, which would raise the costs of imported goods and contribute to inflation. Experts warn that this dependency diminishes incentives to develop domestic manufacturing capabilities in strategic sectors, potentially hindering long-term industrial growth and innovation. As India navigates these complex trade dynamics, the need for a balanced and sustainable economic relationship with China becomes increasingly critical.

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