Why In News?

 India's manufacturing expansion remains deeply dependent on China-centric supply chains, presenting a strategic paradox for the nation's self-reliance objectives.

What is the India-China Trade Paradox?

India Wants to Reduce Import Dependence

  • National Policy: Under the Atmanirbhar Bharat Abhiyan and Make in India frameworks, India aims to reduce strategic exposure to external supply disruptions and curb bilateral trade deficit.

  • Security & Sovereignty: Policy interventions like Press Note 3 (2020) and tariff adjustments were instituted to guard against opportunistic corporate takeovers and unchecked import surges.

Indian Manufacturing Still Depends on Chinese Inputs

  • Industrial Reality: Exports to China remained broadly stagnant between 2021 and 2025, while imports rose sharply by about 71% from $87.5 billion to $149.5 billion in the same period.

  • Production Dependence: Over 98% of imports from China consist of industrial goods, with 70% as intermediate inputs and 22% as capital machinery.

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Self-Reliance and Global Supply Chains

  • Redefining Autarky: Foreign Secretary noted that self-reliance does not mean domestic production of every input, but identifying sovereign capability imperatives while leveraging trusted global partnerships.

  • Deep Value Chain Integration: Indian manufacturing expansion remains deeply engaged in China-centric supply chains, making structurally unviable in the near term.

The “Assembly Trap”

  • Shallow Value Addition: While assembly capacity has scaled (e.g., domestic mobile phone production reaching 33 crore units in FY 2023–24), domestic value addition in electronics remains low at 18% to 22%.

  • Upstream Exposure: Financial incentives have expanded final assembly while component imports (e.g., integrated circuits, displays, and camera modules) surged from 3.3% of the import basket in 2022 to 10.1% in 2025.

What is the Current India-China Trade Situation?

Bilateral Trade

  • Total Merchandise Volume: Total trade expanded to $127.71 billion in FY 2024–25, reaching $151 billion in FY 2025–26 and $167.6 billion in calendar year 2025.

  • H1 2026 Momentum: In the first half of 2026, two-way trade reached $91.72 billion, marking a 23.6% Year-on-Year (YoY) increase.

Indian Exports to China

  • Stagnant Growth: Indian exports to China stood at $14.25 billion in FY 2024–25 and $19.75 billion in calendar year 2025, registering a 5-year Annual Compound Growth Rate (ACGR) of just 0.08%.

  • Commodity Basket: Exports remain concentrated in low-value primary goods such as iron ore, raw materials, slag, ash ($1.94 billion), and organic chemicals. India ranks 34th among China’s import sources with a 0.7% market share.

Indian Imports from China

  • Rapid Expansion: Imports from China rose from $65.26 billion in FY 2019–20 to $113.45 billion in FY 2024–25, reaching $131.6 billion in FY 2025–26, with an import ACGR of 11.74%.

  • Technology Composition: 75% of Chinese imports into India consist of high- and medium-technology manufactured goods.

Growing Trade Deficit

  • Record Imbalance: India’s trade deficit with China widened from $48.65 billion in FY 2019–20 to $99.2 billion in FY 2024–25 and $112.1 billion in FY 2025–26.

  • Deficit Share: The bilateral deficit with China accounts for approximately 35% of India's total global merchandise trade deficit.

China’s Share in India’s Merchandise Imports

  • Dominant Origin: China is India's largest import origin, supplying roughly 16% of India’s total global imports.

  • Import Concentration: For 562 specific product lines at the HSN 8-digit level, China accounts for 80% or more of India's total global import volume.