India’s merchandise trade deficit with China has widened by 13% during the first seven months of the 2024 fiscal year, despite efforts by the government to reduce reliance on China and curb the import of certain Chinese goods. According to the latest data from the commerce and industry ministry, the trade deficit with China reached $57.83 billion during the period of April-October 2024, up from $51.12 billion during the same period last year.

In October 2024, the trade deficit stood at $8.46 billion, slightly higher than the $8.27 billion recorded in October 2023. A trade deficit occurs when a country’s imports exceed its exports, and in India’s case, China continues to be a major contributor to this imbalance.

Imports from China during the April-October period rose to $65.90 billion, up from $60.01 billion in the previous year. On the other hand, exports to China decreased to $8.06 billion, down from $8.89 billion a year ago, highlighting the growing disparity in trade relations. In October, India’s imports from China totaled $9.61 billion, up slightly from $9.54 billion in the previous year, while exports to China fell to $1.18 billion from $1.27 billion.

China continues to be the largest source of imports for India, followed by Russia and the UAE. Notably, Chinese imports to India are nearly double those from Russia and 2.5 times greater than imports from the UAE, underlining China's dominant position in India's merchandise trade.

One of the key factors contributing to this growing deficit is India's over-reliance on China for imports, especially in sectors critical to India’s industrial development. China's share of India's industrial imports has increased from 21% to 30% over the past 15 years, with electronics, telecom, and electric vehicles (EVs) being key sectors where China plays a crucial role. India's push for growth in these sectors, under the Productivity Linked Incentive (PLI) schemes, has only deepened this reliance, as 80-95% of inputs for these industries are sourced from China.

China also dominates India's imports of solar equipment, accounting for 62% of total imports in this sector. India's EV and transformer industries also depend heavily on Chinese imports, such as lithium-ion cells and CRGO steel, essential for manufacturing transformers and electric vehicles.

Despite government efforts to mitigate this dependency, experts argue that India’s reliance on Chinese goods is unsustainable in the long term. Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), has warned that India’s annual trade deficit with China—which already stands at $80 billion—could double within the next five years unless decisive steps are taken to reduce this vulnerability. He advocates for investment in R&D and the development of a self-reliant industrial base to decrease India's dependence on Chinese imports and secure its economic future.

The commerce and industry ministry data also highlights that major imports from China include electronic components, telecom instruments, machinery, organic chemicals, and plastic raw materials, all of which are critical to India’s manufacturing sectors.

In the broader context, India’s overall merchandise trade deficit reached a two-month high in October 2024, driven by a rise in imports across sectors. The overall deficit in October was recorded at $27.14 billion, up from $20.78 billion in September, indicating a persistent imbalance in the country’s foreign trade.

India’s economic reliance on China has raised alarms within the government. V. Anantha Nageswaran, the Chief Economic Advisor in the Ministry of Finance, noted in the 2023-24 Economic Survey that India must focus on foreign direct investment (FDI) from China to curb the growing trade deficit. He suggested that India should consider integrating into China’s supply chain or focus on attracting FDI from China to boost exports, especially to countries like the US, similar to the strategies adopted by East Asian economies.

The China-plus-one strategy, which aims to mitigate risks from over-dependence on China, is gaining traction among developed economies. India, too, could benefit from diversifying its trade and manufacturing bases to reduce vulnerability while ensuring long-term economic stability.

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