India's trade deficit with China will first break 100 billion USD, Indian scholars: It will take more time to catch up with China

[Text / Observer Network Qi Qian]

According to data estimates from India’s Ministry of Commerce and Industry, India’s trade deficit with China in this fiscal year (from April 1 last year to March 31) will surpass 100 billion USD for the first time. Since Modi became India’s Prime Minister in 2014, India’s trade deficit with China has more than doubled.

Japanese media outlet Nikkei Asia reported on March 25 that this clear trend indicates that although the Indian government has been promoting “Made in India” for years, India’s economic dependence on China is deepening.

Data from India’s Ministry of Commerce and Industry shows that from April 2025 to February this year, India’s imports from China reached 119.56 billion USD, higher than 103.77 billion USD in the same period last fiscal year; India’s exports to China rose to 17.54 billion USD, up from 12.74 billion USD in the same period last year.

This indicates that in the first 11 months of this fiscal year, India’s trade deficit with China has reached 102.02 billion USD. The total deficit for the last fiscal year was 99.21 billion USD.

“India’s trade deficit with China is expanding at a rate that should concern policymakers,” said Ajay Srivastava, founder of the global trade research initiative (GTRI), an Indian think tank.

He pointed out that this fiscal year, India’s exports to China are unlikely to exceed 19 billion USD, while imports have surged to nearly 120 billion USD, so he predicts the full-year trade deficit will “estimated to approach 111 billion USD.”

Srivastava attributes the continuous widening of the trade deficit mainly to “insufficient domestic production capacity” in India. He said that India’s manufacturing industry heavily relies on inputs supplied by China, such as electronic components, electric vehicle batteries, solar modules, machinery, chemicals, and pharmaceutical intermediates, “these products are difficult to replace on a large scale.”

He added, “Until India establishes competitive domestic capacity or meaningfully diversifies its supply chains, this deficit will persist structurally, offsetting the gains India makes from increased exports to other regions.”

Recent changes in India’s trade deficit with China [Nikkei Asia map]

In December last year, Gitin Prasad, India’s Minister of State for Commerce and Industry, stated in Parliament that the trade deficit with China is mainly due to imports of raw materials, intermediate products, and capital goods, which are used to manufacture final products and export outside India. He said the government has established a committee composed of representatives from various departments to study bilateral trade trends and “recommend corrective measures when necessary.”

The report mentions that among economists and business circles, there is a view that a large population, lower labor costs, and sustained industrial growth could help India catch up with China and become a global manufacturing hub. According to the World Bank database, India will be the most populous country in the world in 2024, with 1.45 billion people.

However, Banumurti, president of the Madras School of Economics in Chennai, said China has advantages in production scale, “and also has certain advantages in some products, such as rare earths.” He stated that although India is producing products like mobile phones, its raw materials and components “are still dominated by China.” He also pointed out that India exports iron ore to neighboring countries and imports finished products from China.

“In this sense, the added value created by China is much higher,” Banumurti noted. “Of course, we are making progress, but to truly catch up and narrow the gap, more time is needed.”

On March 10, the Indian Cabinet announced approval to amend rules regarding investments from neighboring countries sharing land borders with India. This is the first relaxation of restrictions on Chinese investment since the implementation of Notification No. 3 in April 2020.

Banumurti said, “Perhaps we might allow China to produce within our economy instead of importing from there. So, this could be another change in the future.”

Regarding foreign media hype about China’s trade surplus, Chinese Foreign Ministry spokesperson Guo Jiakun responded in January that China’s competitive advantage in products does not come from subsidies but results from substantial R&D investment, full market competition, and a complete industrial chain. China has never deliberately pursued a trade surplus; it not only aims to be the “world’s factory” but also the “world’s market.”

Recently, Zhang Yansheng, a researcher at the China Macroeconomic Research Institute, told Observer Network that China’s goods trade surplus will reach 1.19 trillion USD in 2025, largely reflecting China’s comparative advantage and strong international competitiveness. At the same time, China’s service trade still has a significant deficit, especially in areas like intellectual property rights and licensing fees, where the deficit is expanding.

Zhang Yansheng said that when exports are impacted, Chinese enterprises should promote trade transformation, including establishing factories locally and engaging in global cooperation.

He pointed out that Chinese companies going abroad have shifted from “winner-takes-all” to “everyone can eat.” “My partners include leading local enterprises, and the benefits are shared—some go to me, some to the host country, and some to third parties. This forms a community of shared interests, making others less likely to act rashly.”

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