In the fiscal year 2024-25, India’s trade deficit with China reached an unprecedented $99.2 billion, marking a significant escalation in the trade imbalance between the two nations. This record deficit, driven by a surge in imports and a contraction in exports, underscores India’s growing economic dependence on Chinese goods and raises concerns about structural vulnerabilities in its trade ecosystem. This article delves into the latest developments, outlines the major products traded between India and China, and analyzes the primary reasons behind this widening gap.

Trade Figures: A Stark Imbalance

According to data released by India’s Ministry of Commerce and Industry, India imported $113.5 billion worth of goods from China in 2024-25, reflecting an 11.5% increase from the previous fiscal year’s $101.73 billion. In contrast, India’s exports to China declined by 14.4%, dropping from $16.66 billion in 2023-24 to $14.25 billion in 2024-25. This disparity resulted in a trade deficit of $99.2 billion, the highest on record, with China solidifying its position as India’s second-largest trading partner after the United States, with two-way trade totaling $127.7 billion.

The trade imbalance has been a persistent issue, but its sharp escalation in 2024-25 has alarmed policymakers and trade experts. The deficit in the first 10 months of the fiscal year alone reached $83.52 billion, nearly matching the full-year deficit of $85.06 billion in 2023-24, signaling a worsening trend.

Major Products Traded in 2024-25

The trade relationship between India and China is characterized by a heavy reliance on Chinese industrial goods and a limited basket of Indian exports, primarily raw materials. Below is a breakdown of the major products traded:

India’s Imports from China

India’s imports from China are dominated by industrial and technology-intensive goods, which account for a significant share of the trade deficit. Key import categories include:

Electronics and Components: Electronic components, computer hardware, telecom instruments, and mobile phone components are major imports, driven by India’s booming electronics manufacturing sector.

Electrical Machinery and Equipment: This includes electric batteries, solar cells, and other electrical machinery critical for India’s renewable energy and industrial sectors.

Organic Chemicals and Pharmaceutical Ingredients: Active pharmaceutical ingredients (APIs) and other chemical inputs are vital for India’s pharmaceutical industry.

Plastic Raw Materials: These are used in various manufacturing processes, including packaging and consumer goods.

Dairy Machinery and Auto Components: Specialized machinery for dairy processing and automotive parts are also significant imports.

Consumer Durables: Goods such as toys, glassware, ceramic products, and leather goods, where China holds over 50% of India’s global import share, further contribute to the import bill.

In March 2025 alone, imports of electronics, electric batteries, and solar cells surged by over 25% year-on-year, reaching $9.7 billion, highlighting the growing demand for these products.

India’s Exports to China

India’s exports to China are significantly smaller in value and consist primarily of low value-added, primary commodities. Major export categories include:

Iron Ore: A key raw material for China’s steel industry, though demand has weakened due to China’s economic slowdown.

Marine Products: Seafood and other marine exports remain a steady but small contributor.

Petroleum Products: Refined petroleum products are exported, but their share is limited.

Organic Chemicals: These include basic chemical compounds used in industrial processes.

Spices and Castor Oil: Agricultural products like spices and castor oil are niche exports.

Telecom Equipment: Limited exports of telecom-related products also feature in the trade basket.

The narrow range of export commodities, coupled with a 14.5% decline in export value in 2024-25, has exacerbated the trade imbalance.

Reasons for the Record Trade Deficit

Several structural and external factors have contributed to the ballooning trade deficit with China in 2024-25:

Surge in Chinese Imports:

The 11.5% increase in imports from China is driven by India’s rising demand for industrial inputs, particularly in electronics, electric vehicle (EV) batteries, solar cells, and other key sectors. China dominates as India’s top supplier in all eight major industrial product categories, creating a deep dependency.

India’s Production-Linked Incentive (PLI) schemes, aimed at boosting domestic manufacturing, have inadvertently fueled import growth due to reliance on Chinese components. For instance, mobile phone and electronics manufacturing depends heavily on imported Chinese parts.

Decline in Indian Exports:

India’s exports to China fell by 14.4% in 2024-25, partly due to China’s economic slowdown, which has reduced demand for raw materials like iron ore. China’s internal economic challenges, including reduced infrastructure spending, have further dampened demand for Indian exports.

Market access barriers in China, particularly for India’s competitive sectors like pharmaceuticals, IT services, and agricultural products, limit export potential. Non-tariff barriers and restrictive trade practices hinder India’s ability to diversify its export basket.

Structural Dependencies:

The trade deficit reflects India’s deeper structural reliance on Chinese industrial goods, which dominate supply chains in critical sectors. According to Ajay Srivastava of the Global Trade Research Initiative (GTRI), this dependency is not merely a trade imbalance but a sign of India’s limited domestic production capacity in high-tech and industrial goods.

The rupee’s depreciation against the dollar has worsened the trade balance by increasing the cost of dollar-denominated imports, including those from China.

Global Trade Dynamics and U.S. Tariffs:

The U.S. imposition of high tariffs on Chinese goods (up to 145% in 2024) has raised concerns about Chinese firms diverting exports to other markets, including India. This “dumping” of cheaper goods could further widen the deficit, prompting India to establish an import monitoring mechanism to counter such practices.

Chinese goods may also enter India indirectly through ASEAN countries, leveraging India’s free trade agreement with the bloc, which complicates efforts to control imports.

Limited Export Competitiveness:

India’s export basket to China remains concentrated in primary commodities, which are less value-added compared to China’s technology-intensive exports. This asymmetry limits India’s ability to close the trade gap.

The lack of predictable trade arrangements and reciprocity in bilateral trade agreements further disadvantages India, as flagged by Indian officials in discussions with China.

Policy Responses and Future Outlook

The Indian government has taken steps to address the trade deficit, including setting up an import monitoring unit to track surges in Chinese goods and warning firms against facilitating tariff circumvention. Additionally, India has tightened foreign direct investment (FDI) norms for countries sharing land borders, such as China, to reduce dependency on Chinese capital.

China has signaled willingness to address India’s concerns by increasing imports of Indian goods and removing tariff and non-tariff barriers. However, Indian officials remain cautious, fearing that easing trade barriers could exacerbate the dumping of Chinese goods.

Experts suggest that India must focus on boosting domestic production, diversifying import sources, and enhancing export competitiveness in high-value sectors. Strengthening trade agreements and addressing market access barriers in China could also help balance the trade relationship.

Conclusion

India’s record $99.2 billion trade deficit with China in 2024-25 highlights a critical challenge for its economic policy. While imports of electronics, machinery, and chemicals fuel India’s industrial growth, the decline in exports and structural dependencies underscore the need for strategic interventions. As global trade dynamics shift, particularly with U.S. tariffs reshaping supply chains, India must prioritize self-reliance and export diversification to mitigate the risks of an ever-widening trade gap. The road ahead demands a delicate balance between leveraging global trade opportunities and safeguarding domestic economic interests.