• With the help of data and insights, this article evaluates various aspects of India’s trade deficit with China. India Inc. has to take the lead. The government of India can facilitate execution.  

I had earlier written What India can do to reduce Imports from China and increase from Taiwan. Thereafter, during the Lenskart IPO got to know that it imports spectacle frames from China. So also, a MINT story about two weeks ago, referred to an online seller who imported ready-made garments from China. The trade deficit with China thus, can only increase.

A MINT report dated 14/10/26 titled ‘Indians auto firms set up China bases as trade barriers mount’. The report to three auto/auto ancillary firms who are looking to be closer to China’s supplier base through sourcing teams or physical presence in China. ‘China’s share of India’s auto component imports rose by 4% to 36% in FY26.’ Supply of rare earth magnets from China has become a constraint for India Inc. Surely, these moves help reduce cost.

On 17/10/26 a Business Standard headline read ‘China’s non-tariff walls a major export hurdle: FM Sitharaman’ where Nirmala ji said that non-tariff barriers were the biggest hurdle for Indian exports, alleging that Beijing denied market access to Indian products for e.g. generic drugs, bovine meat and agricultural produce. India’s trade deficit was $ 112 billion in FY26 from $ 52.7 billion in FY16.

I reached out to Global Trade Research Institute for some data on key imports from China. Here is what they shared –

Table 1 Imports in USD Billion – Courtesy GTRI   

Comments –

1. GTRI wrote, “India’s exports to China stood at $19.7 billion in FY2026—still below the $21.2 billion recorded in FY2021—while imports more than doubled from $65.2 billion to $131.6 billion. Consequently, the trade deficit surged from $44 billion to $111.9 billion. China now supplies over 30% of India’s industrial imports, and India depends on it for more than 100 critical products, giving Beijing considerable leverage over Indian manufacturing.”

Just like the Middle East War of 2026 exposed India’s vulnerabilities in the energy sector, a war or break-down of ties with China might affect India’s manufacturing growth rates adversely. India should not repeat mistake made by the U.S. 

One of many contributors to the rise in profits of U.S. Inc. was shifting manufacturing base to low-cost China. Profits surged, stock market valuations rose but the cost of that dependence is being borne now when U.S. and China have become strategic competitors.

It appears that India Inc. is following U.S. Inc footsteps even though I hasten to add that the government of India has realized this weakness and is pushing Make in India through PLI (production linked incentive scheme).

What we in India tend to forget that whilst assembling Apple phones is a good first step and leads to exports, it increases India’s trade deficit with China.

Recently there were news reports of the Sajjan Jindal Group setting up a plant in erstwhile Aurangabad to make electric buses, albeit with Chinese help. Such imports contribute to the bulging trade deficit with China but reduce also energy imports. So one must evaluate, if such imports are net positive. Conversely, one should look at the imports by the SJ Group Joint Venture with a Chinese company carefully because India has a developed eco-system in the automobile industry.

So how can India reduce trade deficit with China?

GTRI says that India can reduce trade deficit by strengthening manufacturing. Aim is to increase exports and replace avoidable imports. “This requires action on five fronts. One, industrial policy must be sector-specific since factors of production has various contributors. Two, India must lower manufacturing costs through affordable power and credit, efficient logistics and stable regulations.” The problem with this unless state level dishcoms stop giving free or cross-subsidised power, the rate per unit shall be higher. This affects India’s competitiveness. 

“Three, policy should support downstream manufacturing and MSME value addition instead of disproportionately favouring upstream commodity industries. Four, India should launch a large-scale programme to reverse-engineer and localise imported products such as motors, pumps, bearings, machine tools and industrial equipment.”

Will India’s trade deficit with China go up in the future?

Yes. Because India is at a stage of development where its Chinese imports for e.g. battery storage systems. Solar Power by itself, is good for idea but unless India has the capacity store that power in batteries it shall limit the production and selling price of solar power. India must take a long term view because these storage systems have multiple benefits.

GTRI adds, “India’s trade deficit with China is likely to rise further. China supplies over 30% of India’s industrial imports, and about 65% of imports from China are electronics, machinery, computers and organic chemicals, including pharmaceutical ingredients. Demand will grow rapidly as India expands manufacturing, solar power, electric vehicles and digital infrastructure—all sectors that depend heavily on Chinese components.”

As long as factories are working towards making these inputs in India in the medium-term India shall have to live with such Chinese imports.

India should not hesitate to import technology from China if as is said, there is peace on the border?

India has imported technology from the West so why not China. Note that China is not the first country to weaponize export of technology. If the Chinese see India making progress in new technologies, they might wish to join hands. However, if they Indians to be copy paste masters they could exploit us. The choice is ours.

India Inc must learn from the U.S. experience and work towards strengthening manufacturing in India. Chinese imports can increase quarterly profits and share price but this strategy can only go that far.   

My approach to China is clear – Cooperate and Compete.

Simultaneously, what FM Sitharaman has said is right. The Chinese should give Indian companies fair market access. India must point outs specifics, benchmark with what Chinese companies get in India and demand fair access.

China’s non-tariff barriers vs. India 

According to this article in policyresearch.org on China’s non-tariff barriers, “Non-tariff barriers include product certification, import licensing, customs procedures and technical standards. Sanitary and phytosanitary regulations governing food safety and animal and plant health serve legitimate public purposes. Problems arise when such requirements are discriminatory, unnecessarily restrictive or administered in ways that impose unreasonable costs on foreign suppliers. 

India’s difficulties with China illustrate the economic consequences. Pharmaceutical exports depend on regulatory approvals, inspections and recognition of manufacturing standards. Agricultural and animal products are subject to additional requirements concerning disease control and food safety. 

For an exporter, a tariff concession has little commercial value if the product cannot be registered or cleared for sale.

The pharmaceutical industry provides a measure of the opportunity being missed. According to NITI Aayog’s Trade Watch, China’s pharmaceutical import demand reached an estimated $40.4 billion in 2025, while India accounted for just 0.2% of that market. Indian pharmaceutical exports to China declined 11.54% in FY26 to $287.42 million.”

Ideas to reduce Trade Deficit with China

The government of India has to nudge/push the Chinese government towards removing non-tariff barriers. It could ask the Chinese – do they want a long or short-term play at the large Indian market.

Another way is to increases exports to Europe, North America and form joint ventures that export to the world. The Chinese are good observers – once they decipher the moves, they might react differently. 

As India exported petroleum products to Europe, it should explore similar exports to China. Transportation cost from India are lower.

Identify where China is falling short and try to manufacture those goods.

Explore replacing imports from China with imports from Taiwan.

India Inc. has to take the lead and tell the government of India how it can facilitate exports to China as well as reduce imports.

The Annual Report of every company, public or private, must give the FOB Value of Imports from China. 

Maharshi Aurobindo said in 1905: “If we have strength everything else will be added to us easily and naturally. In the absence of strength we are like men in a dream who have hands but cannot seize or strike, who have feet but cannot run.”

Also read

1. India China Trade Paradox: Dependency and Geopolitical Rivalry – good read

2. Global Times – India should move beyond trade deficit anxiety – “Rather than competing for shares in traditional primary product categories, aligning export portfolios with the trajectory of China's industrial upgrade represents a more pragmatic and sustainable path forward.”

3. India Inc must realize that China and India are natural adversaries, High-impact plays where Taiwan can replace China as exporter