India’s trade deficit with China soars during April-October despite import curbs

New Delhi: India’s merchandise trade deficit with China has risen 13% during the first seven months of the current fiscal year, despite government measures aimed at cutting reliance on the Asian manufacturing major and restrictions on import of certain products from the country.

India's goods trade deficit with China widened to $57.83 billion during April-October from $51.12 billion a year ago, according to data from the commerce and industry ministry. 

In October, the trade deficit stood at $8.46 billion, up from $8.27 billion a year ago.

A trade deficit occurs when a country's imports exceed its exports.

China was the largest source of India's imports in the April-October period, followed by Russia and the UAE.

Interestingly, Chinese imports to India, in value terms, were nearly double that of Russia and about 2.5 times more than imports from the UAE during the period.

During April-October 2024, goods imports from China stood at $65.90 billion, up from $60.01 billion a year ago. Exports to China fell to $8.06 billion from $8.89 billion in the year-ago period.

In October, imports from China stood at $9.61 billion, up from $9.54 billion a year ago, while exports fell to $1.18 billion from $1.27 billion a year ago. 

Also Read: How India can fix the Chinese imports problem

The China factor

China's share in India’s industrial imports has risen from 21% to 30% over 15 years, dominating critical sectors like electronics, telecom, and electric vehicles, with India’s green transition heavily reliant on Chinese inputs.

Experts said this reliance is set to deepen as India scales up electronics, telecom, EVs and smartphone production under its productivity linked incentive (PLI) schemes, where 80-95% of inputs—mostly sourced from China—drive these sectors.

China accounts for 62% of India’s solar equipment imports, with other suppliers like Vietnam also relying on Chinese polysilicon for solar cell production, said Ajay Srivastava, former trade service official and the founder of economic think tank Global Trade Research Initiative (GTRI).

India’s EV and transformer industries depend heavily on Chinese imports, including lithium-ion cells and cold rolled grain oriented or CRGO steel, essential for manufacturing transformer windings, he said.

"This over-reliance is unsustainable as India's annual trade deficit with China, already at $80 billion, is projected to double within five years. To mitigate this growing vulnerability, India must prioritize investments in R&D and deep manufacturing, fostering a self-reliant industrial base to reduce dependence on Chinese imports and secure its economic future," Srivastava added.

According to data from the commerce and industry ministry, major imports from China include electronic components, computer hardware, telecom instruments, machinery, organic chemicals, plastic raw materials and bulk drugs.

To put things in perspective, India’s overall merchandise trade deficit widened to a two-month high in October, driven by a rise in imports.

India’s goods trade deficit widened to $27.14 billion in October from $20.78 billion in September.

This deficit was $29.65 billion in August, $23.5 billion in July, $20.98 billion in June, $23.78 billion in May, and $19.1 billion in April.

V. Anantha Nageswaran, chief economic advisor in the ministry of finance, in the 2023-24 Economic Survey of India had noted that India is overly dependent on China for imports, especially renewable energy. The survey suggested focusing on foreign direct investment (FDI) from China could help arrest the growing trade deficit.

"India faces two choices to benefit from China plus one strategy: it can integrate into China's supply chain or promote FDI from China. Among these choices, focusing on FDI from China seems more promising for boosting India's exports to the US, similar to how East Asian economies did in the past," the survey said.

"Moreover, choosing FDI as a strategy to benefit from the China plus one approach appears more advantageous than relying on trade. This is because China is India's top import partner, and the trade deficit with China has been growing," it added.

The China-plus-one strategy is a global business approach, especially adopted by developed economies, designed to mitigate the risks of over dependence on China's supply chain, products and market.

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