INDIA’S
TRADE DEFICIT WITH CHINA IN 2024-2025: INTERNATIONAL RELATION
NEWS: China floods Indian markets as
trade deficit soars past $99 billion
WHAT’S
IN THE NEWS?
India’s
trade deficit with China hit a record $99.2 billion in 2024–25, driven by
rising imports of electronics and industrial goods, while exports declined.
This growing dependence raises economic, strategic, and security concerns,
prompting policy efforts to boost domestic manufacturing and reduce reliance on
Chinese imports.
India's Trade Deficit
with China in 2024-25
- Record Trade Deficit: India’s trade deficit with China reached a record
high of $99.2 billion in the 2024-25 fiscal year.
- Bilateral Trade
Volume: Total bilateral
trade between India and China stood at $127.7 billion, with China
remaining India’s second-largest trading partner, following the United
States.
- Import and Export
Data:
- Imports
from China
surged to $113.5 billion.
- Exports
to China fell
sharply to $14.3 billion, contributing to the large deficit.
Key Reasons for India’s
Trade Deficit with China
- High Imports of
Intermediate Goods and Raw Materials:
- India
imports a large volume of components and raw materials from
China. These include products like electronics, pharmaceuticals
(APIs), chemicals, and textiles, which are critical to various
sectors in India.
- Consumer Electronics
and Machinery Imports:
- China
is a major supplier of mobile phones, electrical machinery, and telecom
equipment to India. The low-cost and efficient manufacturing of these
goods in China makes it difficult for Indian manufacturers to compete.
- India’s
exports to China are predominantly raw materials such as iron
ore, cotton, and copper, which lack significant value
addition. This reduces the potential for higher revenue generation from
exports.
- Barriers to Market
Access:
- Indian
firms face challenges such as regulatory hurdles, quality
standards, and limited demand for Indian goods in China’s
domestic market, preventing the growth of Indian exports to China.
- Cost and Scale
Advantages of China:
- China’s
well-established manufacturing infrastructure allows it to produce goods
at much lower costs and on a larger scale, making Chinese goods more
competitive in the global market.
- Global Supply Chain
Integration:
- Chinese
firms are deeply embedded in global value chains, providing a wide
variety of goods at competitive prices, which India cannot easily match
due to its evolving manufacturing capabilities.
- India’s Lag in
High-Tech Manufacturing:
- India’s
‘Make in India’ initiative is still in progress, and the local
manufacturing sector is not yet competitive enough to replace Chinese
imports, especially in high-tech industries like electronics and industrial
machinery.
Concerns Regarding the
Trade Deficit with China
- Future Outlook and
Potential Increase in Imports:
- Imports
from China could rise by up to 20% in the current fiscal year as
Chinese exporters seek to redirect goods away from the United States due
to new tariffs, further exacerbating the trade imbalance.
- Impact on Indian
Manufacturers and MSMEs:
- Cheap
imports from
China continue to undermine the competitiveness of Indian manufacturers,
especially in the MSME (Micro, Small, and Medium Enterprises)
sector, leading to slower industrial growth and potential job losses.
- Cybersecurity and
Data Security Concerns:
- The
heavy import of telecom equipment, surveillance gear, and electronics
from China raises significant concerns regarding cybersecurity and
data security, particularly in sensitive areas like communications
and infrastructure.
- Impact on Current
Account Deficit (CAD):
- A
large trade deficit with China contributes to a widening current
account deficit (CAD), putting pressure on the rupee and
reducing foreign exchange reserves, which could affect India's
overall economic stability.
- Political and
Diplomatic Tensions:
- The
trade dependency on China appears contradictory in the context of border
tensions and strained diplomatic relations, raising concerns
about the long-term risks of such a large trade imbalance.
- India’s
continued dependence on Chinese technology goods reflects its lag in high-tech
innovation and manufacturing, which has broader implications
for its economic and strategic autonomy.
Government Initiatives to
Address the Trade Deficit
- Directorate General
of Trade Remedies (DGTR):
- The
DGTR monitors unfair trade practices and suggests corrective
actions to protect Indian industries from dumping and subsidized
imports.
- Vocal for Local
Campaign:
- The
Indian government is promoting the Vocal for Local campaign,
encouraging consumers and businesses to prioritize Indian-made products
and reduce demand for Chinese imports.
- Production-Linked
Incentive (PLI) Schemes:
- India
is implementing PLI schemes for 14 key sectors, such as
electronics and telecommunications, to enhance manufacturing capabilities
and boost exports.
- Export Promotion
Schemes:
- Various
schemes such as the Trade Infrastructure for Export Scheme (TIES)
and Market Access Initiatives (MAI) are aimed at improving export
infrastructure and expanding market access for Indian products.
- Sector-Specific
Assistance for Agricultural Exports:
- The Agricultural
& Processed Food Products Export Development Authority (APEDA)
provides financial assistance to facilitate the export of agricultural
products, enhancing India’s agricultural export capabilities.
- Marine Products
Export Development:
- MPEDA focuses on upgrading infrastructure for the marine
products sector, offering assistance for aquaculture production,
establishing testing laboratories, and supporting participation in
international trade fairs.
- Districts as Export
Hubs Initiative:
- The
government has launched this initiative to identify export potential
in various districts, support local manufacturers, and address
bottlenecks in export logistics and processes.
Conclusion and
Recommendations
- Economic Resilience
and Diversification:
- To
mitigate vulnerabilities, India must diversify its sources of imports and
reduce dependency on China. This can be achieved through stronger
domestic manufacturing, leveraging initiatives like ‘Make in India’
and PLI schemes.
- Balanced Economic
Framework:
- Reducing
dependency does not mean economic isolation. It is crucial for
India to develop a balanced economic framework that fosters
strategic autonomy, encourages innovation, and strengthens domestic
industries.
- Strategic Autonomy
in Manufacturing:
- India
must invest in high-tech manufacturing and technological
innovation to ensure greater self-reliance and enhance its economic
and strategic autonomy.
Source: https://economictimes.indiatimes.com/news/economy/foreign-trade/china-floods-indian-markets-as-trade-deficit-soars-past-99-billion/articleshow/120356232.cms?from=mdr