New Delhi, India, August 30, 2025
A significant concern is brewing for India’s economy as its increasing dependence on trade with China creates a series of economic and geopolitical risks. While trade between the two Asian giants has soared to new heights, a ballooning trade deficit in China’s favor is raising alarms and putting pressure on India to find a new path toward economic self-reliance.
The Widening Trade Gap
The trade deficit between India and China has grown to a staggering $99.2 billion in the fiscal year 2024-25, the largest India has with any country. While India’s exports to China are growing, they are largely a narrow range of raw materials. In contrast, China’s exports to India are a wide range of finished goods and critical components, from electronics and solar panels to pharmaceuticals and heavy machinery.
This imbalance means that China accounts for a large portion of India’s total trade deficit, creating significant pressure on India’s foreign exchange reserves. While cheaper Chinese imports may benefit Indian consumers in the short term, this dependence is harming local manufacturers who struggle to compete on price, potentially leading to job losses and reduced industrial growth in the long run.
Structural and Strategic Risks
The risks of this growing dependence are not just economic but also structural and strategic. India has become reliant on China for essential inputs in critical sectors. For example, over 80% of India’s solar cells, 75% of lithium-ion batteries, and 80% of laptops are sourced from China. This over-reliance creates a significant vulnerability, as an adversary could use trade as a weapon. If tensions were to escalate, China could impose export restrictions on these critical items, severely impacting India’s economy and its manufacturing ambitions.
Additionally, a structural imbalance exists because China has created non-tariff barriers on many of India’s competitive exports, such as pharmaceuticals and agricultural products, while aggressively pushing its own finished goods into the Indian market. This has been a long-standing issue that diplomatic efforts have not been able to resolve.
A New Diplomatic Scramble
The trade dilemma has been made more urgent by recent global events. US tariffs on Indian exports have forced New Delhi to re-evaluate its trade relationships and seek closer ties with its Eurasian partners, including China. However, experts warn that relying on China is not a long-term solution. They say that while a closer relationship with China may offer some short-term relief from trade tensions with the US, it does not address the underlying issue of India’s over-reliance on a single country for critical goods.
The solution, experts argue, lies in strategic diversification. India must continue to build its own domestic manufacturing capabilities, as outlined in the “Make in India” initiative, and strengthen its trade relationships with other countries, including the US, the European Union, and Japan. This would not only reduce its dependence on China but also create a more resilient and sustainable economy for the future.
