What happened
India's trade deficit with China has significantly increased, reaching $112bn this year, despite diplomatic efforts to address the issue. The country's dependence on Chinese imports has deepened, with China supplying over 30% of India's industrial imports. India has been unable to reduce its reliance on Chinese goods, except in the toy sector, where tariffs and quality control standards have helped reduce imports and increase exports.
Experts say that India's economic dependence on China has continued to grow, even as political and security ties have deteriorated. China now supplies over 100 critical products to India, and the imbalance is worsening. The rapid pace of imports could lead to a further increase in the bilateral deficit, giving China more leverage over Indian industry.
Prime Minister Narendra Modi and Chinese President Xi Jinping have vowed to address the trade imbalances and supply chain issues. However, experts say that this will be a challenging task, given the deeply entrenched nature of Chinese imports in India's industrial economy. India depends on China not only for end-products but also for industrial goods, including components, machinery, and raw materials.
The Indian government has taken steps to reduce its reliance on Chinese imports, including softening foreign direct investment rules and promoting domestic manufacturing. However, experts say that more needs to be done to strengthen manufacturing and improve exports performance. India could focus on targeting higher exports to China in specific sectors, such as pharmaceuticals, to reduce its trade asymmetry.
