Context : Magnitude of the Trade Deficit
- India’s trade deficit with China reached an all-time high of $99.2 billion in FY 2024-25.
- This marks a sharp increase from previous years, reflecting rising imports and stagnant exports.
Relevance : GS 2(International Relations) ,GS 3(Indian Economy)
Composition of Imports from China
- Electronics & Consumer Durables were the major drivers of imports.
- Includes smartphones, telecom equipment, laptops, televisions, etc.
- Other key import items:
- Machinery, active pharmaceutical ingredients (APIs), chemicals, and auto components.
- Reflects continued dependency on Chinese manufacturing despite efforts like Atmanirbhar Bharat.
Stagnant Indian Exports
- Indian exports to China have not kept pace with rising imports.
- Major exports include iron ore, organic chemicals, cotton, and seafood.
- Limited value-added products in export basket limits India’s leverage.
- China’s non-tariff barriers and selective import practices further restrict Indian access to Chinese markets.
Geopolitical Context
- Comes amid U.S. tariff hikes on Chinese goods under President Trump’s policy.
- The 90-day pause on tariffs for countries like India may cause:
- Trade diversion: Chinese firms redirecting goods to Indian and other Asian markets.
- Flooding of cheap Chinese products into India, further worsening the deficit.
- Raises concerns over dumping practices and economic over-dependence.
Economic and Strategic Implications for India
- Widening trade imbalance puts pressure on India’s current account deficit (CAD).
- Heightens the urgency to:
- Boost domestic manufacturing through PLI schemes.
- Reduce critical import dependency, especially in tech and pharma sectors.
- Strategic concerns: High import reliance on an adversarial neighbor weakens economic resilience.
Policy Response and Way Forward
- Need for targeted trade diversification:
- Strengthen ties with ASEAN, EU, Africa, and Latin America.
- Enhance domestic supply chains and infrastructure to attract investments.
- Consider tariff and non-tariff barriers to prevent unfair dumping.
- Promote export competitiveness via innovation, branding, and trade facilitation.
