India’s Growing Dependence on China: The Trade Imbalance and Its Impact on Manufacturing

 

It’s the same story with industrial machinery, battery materials, chemicals, solar cells and manufacturing equipment.

Electrical machinery and electronics alone account for 36% of India’s imports from China, followed by machinery and mechanical appliances at 21.7%. Organic chemicals and plastics also make up a significant share, according to the Observer Research Foundation (ORF).

“Their interruption would not merely affect consumption; it would disrupt production itself,” says Soumya Bhowmik, a Fellow at ORF’s Centre for New Economic Diplomacy. He argues that this highlights India’s difficulty in replacing Chinese inputs with locally produced alternatives.

Beyond its growing reliance on Chinese inputs and raw materials, India’s imports from China are also being driven by wider economic trends.

China has significant excess production capacity in industries ranging from steel to solar panels and electric vehicles, while its slowing economy is unable to absorb all of this output.

As a result, Chinese manufacturers are increasingly turning to overseas markets, often selling goods at highly competitive prices. China’s trade surplus is expected to exceed $1 trillion for a second consecutive year.

Many of these goods are reaching India because the country is rapidly expanding manufacturing across different sectors of its economy. At the same time, Western markets are imposing tariffs and other restrictions, says Srivastava.

India has reduced its imports of finished smartphones, but it remains heavily dependent on China for many of the components used to manufacture them.

On the other hand, limited access to the Chinese market remains a major challenge for Indian companies.

“Indian products face a variety of tariff and non-tariff barriers in China that make it difficult to scale exports,” says Li.

“If the normalisation of ties continues without a serious push for reciprocal market access, India risks a situation where political relations improve while economic dependency remains largely unchanged.”

The long-term solution to reducing unnecessary imports while improving export performance is to strengthen India’s manufacturing sector, says Srivastava.

However, this will require sector-specific industrial policies and stronger economic fundamentals, including affordable electricity and credit, efficient logistics and stable regulations—areas where India still faces challenges.

India has also recently eased some foreign direct investment rules, potentially opening the door for Chinese companies seeking to expand their investments in the country. However, these investments will need to be carefully assessed, he adds.

“Investment that merely expands distribution networks or assembles products using Chinese parts could increase imports and deepen dependence. Approvals should therefore prioritise technology transfer, local value addition, domestic component production and exports from India.”

In the short term, India could focus on increasing exports to China in specific sectors to reduce the trade imbalance, says Li. Pharmaceuticals, for example, could be a natural area of opportunity as China’s population ages and healthcare costs rise.

“But narrowing a $112 billion deficit will not come from finding niche export sectors alone,” he adds.

“The key question is whether Beijing is ready and willing to make concessions on market access as part of the broader normalisation. Alternatively, India will need to find its own leverage to bring China to the negotiating table.”