India trade deficit with China hits staggering $112 billion
An in-depth look at India's growing trade imbalance with China as the bilateral deficit surges from $44 billion in 2020 to $112 billion.
Stock photo for illustration only, not from the actual event
- India's trade deficit with China has jumped from $44 billion in 2020 to $112 billion this year.
- India's toy sector successfully reduced reliance on imports after raising tariffs to 70%.
- India remains heavily dependent on Chinese industrial components, electrical machinery, and raw materials.
- Leaders from both nations vowed at the Brics summit in Delhi in September to address structural imbalances.
A walk into an Indian toy shop offers a glimpse into the nation's struggle for a better economic relationship with its powerful neighbor, China. Six years ago, in an effort to boost local manufacturing and keep substandard toys out of the market, India raised import tariffs on toys from 20% to 60% and eventually to 70%.
Retailers protested, arguing that domestic firms could never match foreign-made goods, but the combination of higher customs duties and strict quality controls worked. Indian toy imports dropped by a third from nearly $300m, or about £227m, in 2020 to $100m this year, while exports grew from around $129m to $200m in the same period. Furthermore, the country drastically reduced its dependence on China, which previously held a 70% share of the local toy market.
This sector stands out as a rare exception in India's otherwise unsuccessful attempts to rebalance its lopsided trading relationship with its larger neighbor, which experts describe as among the most asymmetric in the world. Even as diplomatic ties completely broke down following the Galwan Valley clashes in 2020 and Delhi introduced anti-dumping duties alongside bans on Chinese apps like TikTok, the trade deficit with Beijing has ballooned from $44bn in 2020 to a striking $112bn this year.
More worryingly, exports to China remained below pre-pandemic levels even as imports doubled during this period. If this rapid import pace continues, the bilateral deficit could reach $134bn, giving Beijing even greater leverage over Indian industry, according to Srivastava.
Stock photo for illustration only, not from the actual event
On the sidelines of the Brics summit in Delhi in September, amid a growing thaw between the Asian giants, Prime Minister Narendra Modi and Chinese President Xi Jinping vowed to address these structural trade imbalances and supply chain issues.
"Given how deeply entrenched Chinese imports have become to India's industrial economy, this will be a formidable task for Delhi."
Experts told the BBC
This challenge persists primarily because India depends on China not merely to consume end-products, but increasingly to produce industrial goods. While India has reduced reliance on finished goods like smartphones and solar equipment—now producing over a quarter of the world's iPhones—production remains largely assembly-based and relies heavily on imported components from China, notes Srivastava.
India's push for domestic manufacturing while remaining tied to imported components highlights a broader structural dilemma in modern supply chains. Assembly-focused manufacturing creates short-term jobs, but without robust domestic upstream industries—such as basic component fabrication and chemical refining—nations remain vulnerable to trade deficits and external economic pressure, despite protective tariffs on finished goods.
The story is identical for industrial machinery, battery inputs, chemicals, solar cells, and manufacturing equipment. According to the Observer Research Foundation think tank, electrical machinery and electronics alone account for 36% of imports, followed by machinery and mechanical appliances at 21.7%, alongside significant shares of organic chemicals and plastics.
Source: BBC Business
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