The India-China trade deficit increase to $99.2 billion in FY25, caused due to surging imports and declining exports. U.S. tariff policies may aggravate this differences by redirecting Chinese goods to India’s markets.
India-China trade deficit touches $99.2 billion Mark
Why is India-China trade deficit not reducing?
India’s trade deficit with China has touches a mark of $99.2 billion in 2024-25. Union Commerce Ministry reported 25% increase in imports from China in March at $9.7 billion. Annual imports increased by 11.52% to $113.5 billion from $101.73 billion in FY24.
Exports to China however fell sharply. They dropped 14.5% in March to $1.5 billion and $14.3 billion for the year, down from $16.66 billion in FY24. This shows India’s heavy dependence on Chinese electronics, machinery and chemicals.
Key trends in India-China trade
China is India’s largest supplier across all 8 major industrial categories. Imports of computers, batteries and solar components surged. Notably, smartphone imports from China fell 70% to $252 million as India’s domestic production grew. Cotton exports to China dropped from $725 million to $192 million between April and January.
Ore exports particularly iron nearly halved to $1.5 billion. Similar trend seen in iron, steel and aluminum exports.
India-China trade deficit in FY25 at $99.2 billion
How US tariffs are widening India-China trade deficit?
US President Donald Trump paused tariff hikes for 90 days for countries like India but increased tariffs on Chinese goods. This has raised concerns of Chinese companies redirecting exports to India.
Ajay Srivastava, founder of Global Trade Initiative, said, “India-China trade deficit could grow 20% this year.” A ministry official added, “Higher US costs may push Chinese exporters to flood India with goods.”
India’s response to India-China trade deficit challenges
India will launch a monitoring unit to track low cost imports from China. Government has also warned companies against helping foreign exporters to bypass US tariffs. No new tariffs announced but pressure on India’s manufacturing sector is expected.
- India’s trade surplus with US growsUS remained India’s top trading partner in FY25 for the 4th year in a row with bilateral trade at $131.84 billion. India’s exports to US grew 11.6% to $86.5 billion and imports 7.4% to $45.3 billion resulting in a trade surplus of $41 billion.
US Trade Categories
India’s top exports to US were:
- Telecom instruments ($6.5 billion)
- Precious stones ($5.3 billion)
- Petroleum products ($4.1 billion)
US imports were:
- Crude oil ($4.5 billion)
- Petroleum products ($3.6 billion)
- Coal ($3.4 billion)
What is driving India-China trade deficit?
India’s exports of electronics, pharma and engineering goods are growing. But these sectors are heavily dependent on Chinese components. Srivastava said, “This dependency is driving India-China trade deficit”. Ore exports particularly iron are declining further straining exports.
Changing Export Markets
China slipped to India’s 5th largest export destination, surpassed by UK. Two way trade with China was $127.7 billion, second largest after US.
India’s Top Import Sources in FY25
India’s top five import sources by growth were:
- Thailand (43.99%)
- United Arab Emirates (32.06%)
- China (11.52%)
- USA (7.44%)
- Russia (4.39%)
The UAE ranked third with $100.5 billion in bilateral trade.
How Can India Reduce the India-China Trade Deficit?
India’s manufacturing sector faces risks from foreign supply shocks. Reducing the India-China trade deficit requires:
- Boosting domestic manufacturing
- Diversifying export markets
- Strengthening anti-dumping policies
Investment in technology and infrastructure is critical for competitiveness.
U.S.-India Trade Outlook
India and the U.S. aim to increase bilateral trade to $500 billion by 2030, up from $191 billion. Trade agreement talks could accelerate this growth.
India-China trade deficit contrasted with India-U.S. trade surplus in FY25.
Conclusion
The India-China trade deficit hit $99.2 billion in FY25, fueled by rising imports and falling exports. U.S. tariffs may exacerbate this by redirecting Chinese goods to India. Meanwhile, India’s $41 billion trade surplus with the U.S. reflects shifting global trade patterns. Addressing the India-China trade deficit is crucial for economic resilience.
