India and China face a complex trade relationship, with India facing $99.2 billion deficit in FY25. India dependent on China, especially in electronics, machinery, and fertiliser. To manage strategic autonomy, India should provide credit to MSMEs, boost exports, diversify markets, invest in high-tech manufacturing, and balance strategic autonomy with engagement with major powers.
Copyright infringement not intended
Picture Courtesy: SPUTNIKNEWS
India and China have a complex trade relationship defined by a massive, widening trade deficit favoring China and India's significant dependence on Chinese imports for critical sectors.
| INDIA-CHINA RELATIONS |
In FY25, India's bilateral trade with China totaled $127.7 billion, with imports increased by 11.52% to $113.45 billion and exports decreased by 14.5% to $14.25 billion; trade deficit of $99.2 billion.
Key Imports from China
Electronics and equipment are the top imported products accounted for 59.4% of China's total export value in 2024.
Machinery, nuclear reactors, and boilers represented US$21.70 billion in 2023 imports.
Organic chemicals accounted for US$13.27 billion in 2023.
Plastics import valued at $5.93 billion in 2023.
Iron and steel imports from China reached $2.62 billion in 2023.
Fertilizers (including diammonium phosphate and urea) amounted to $2.61 billion in 2023.
China supplied 29% of India's total auto parts imports in FY2023-24.
Indian Exports to China
Iron ore, petroleum products, organic chemicals, iron & steel, aluminum & aluminum products, and electrical machinery & equipment.
Marine products (frozen fish, shrimp), raw cotton and cotton yarn, non-basmati rice, spices (chili, pepper, turmeric), sugar, vegetable oils (castor oil), tea & coffee.
Raw plastic materials, bulk drugs and intermediates (pharmaceutical products), rubber & rubber articles, animal fodder, and precious & semi-precious stones.
Root Causes of the Trade Deficit
China offers competitive price for raw materials and manufactured goods, resulting Indian businesses to achieve higher profit margins and lower production costs.
India lacks sufficient domestic substitutes, particularly for raw materials and intermediary goods. For eg. India is 100% import-dependent for 10 critical minerals and relies over 40% on China for 6 others, including bismuth, lithium, and silicon.
China produces variety of goods across numerous industries, providing Indian businesses with access to a wide range of products for various market demands.
China delivers international quality standards and offers reliable, high-volume, and high-precision manufacturing with fast turnaround times.
China impose tariff and non-tariff barriers (NTBs) against Indian goods and services, restricting market access.
Domestic firms, especially micro, small, and medium enterprises (MSMEs), lack the scale and competitiveness to offer viable alternatives to imported Chinese goods.
"Make in India" and Production Linked Incentive (PLI) schemes experienced limited success, resulting in increased reliance on Chinese imports for critical components and raw materials.
Economic Dependency on China and its Impact
India's import dependencey, provides China with potential leverage during political tensions.
China use its position (eg, export curb of critical minerals) in global supply chains as a tool of pressure, potential to influence India's foreign policy decisions.
Recent China's export controls, implemented for national security and economic reasons, threaten India's crucial sectors.
Compromised "China +1" Strategy. India presents itself as an alternative investment destination for Western businesses seeking to diversify from China. However, if India appears to align too closely with China, it loose its appeal to investors.
China, facing overcapacity and deflation, may flood Indian markets, with cheaper goods, harm domestic manufacturers, especially small businesses.
Trump’s "tariff terror" forced both China and India to seek collaboration. The US imposed up to 50% tariffs on India and threatened more. This increased India's dependency over China.
Depending on a geopolitical rival for inputs directly raises national security concerns and hampers India's goal of technological self-reliance. India already banned over 300 Chinese apps and excluded Huawei from 5G trials due to security concerns following cyberattacks.
India and China share several strategic conflicts, including unresolved border disputes, China's support for Pakistan, and its "String of Pearls" initiative in the Indian Ocean Region. India's economic dependency limits its strong stand in these disputes.
India's economic dependency on China directly fuels its geopolitical vulnerabilities. However. India's policymakers face a difficult choice, due to the objective of managing USA tarrif Impact by diversifying trade relation with china.
Prioritize resolving border disputes through sustained diplomatic negotiations, demarcating the boundary and implementing confidence-building measures to improve relation.
Provide affordable credit, skill development, and market access for MSMEs, especially in labor-intensive sectors like textiles, apparel, and toys, to replace Chinese imports.
Boost exports to China by addressing existing barriers in sectors like pharmaceuticals, IT, and agriculture.
Diversifying export markets and strengthening partnerships with like-minded countries, including the US, Japan, Australia, and the EU, through platforms like the Quad, to mitigate over-reliance on any single nation.
Expand Production-Linked Incentive (PLI) Schemes across various sectors to attract domestic and foreign investment. India has seen success in mobile phone manufacturing (became 2nd largest) through PLI.
Invest in high-tech manufacturing like chips and batteries to enhance global competitiveness. The National Critical Minerals Mission (NCMM), launched in 2025, aims for self-reliance in critical minerals by 2035.
Explore alternative import sources for critical goods like Active Pharmaceutical Ingredients (APIs), electronics, and machinery from countries like Vietnam, South Korea, Japan, and Taiwan.
Balance strategic autonomy with engagement with all major powers (US, China, Russia, EU) without aligning with any one in attempts to contain others. Relationship with China should be "managed rivalry"; competition without collapsing ties.
Source: INDIAN EXPRESS
|
PRACTICE QUESTION Q. Critically analyze the implications of India's heavy reliance on Chinese imports for its economic sovereignty. 150 words |
It is a strategy where companies diversify their supply chains to countries other than China to reduce over-reliance and mitigate risks.
These are hidden trade restrictions like complex customs procedures, strict quality checks, or licensing requirements.
China's growing naval presence and development of strategic ports in nations surrounding India, like Gwadar and Hambantota, attempt to strategically encircle India.
© 2025 iasgyan. All right reserved
