India's growing trade imbalance with China has evolved beyond a simple case of buying more and selling less. A new report by the think tank Global Trade Research Initiative (GTRI) reveals that Indian manufacturing is now deeply intertwined with Chinese industrial supplies. While China accounts for about 16% of India's total imports, its dominance in industrial goods is far more pronounced, supplying 30.8% of the country's industrial needs. This reliance spans critical sectors such as electronics and pharmaceuticals.
Trade Deficit Widens
In fiscal year 2025-26, India's total imports reached $774.98 billion, with goods from China valued at $131.63 billion. Over the past five years, imports from China have more than doubled, rising from $65.2 billion in FY2021 to $131.6 billion in FY2026. Meanwhile, India's exports to China have remained stagnant at $19.5 billion, still below the $21.2 billion recorded in FY2021. This has pushed India's trade deficit with China to $112.1 billion in FY2026, a 155% increase from $44 billion five years ago.
Nature of Imports
According to GTRI, the core issue is not just the widening deficit but the composition of imports. A staggering 98.5% of India's imports from China are industrial goods, while non-industrial products account for less than 1.5%. India's reliance is heavily concentrated in four sectors: electronics, machinery, computers, and organic chemicals. Together, these sectors accounted for $82.6 billion, or 66%, of total imports from China.
China supplies 43% of India's electronics imports, 40% of machinery and computer imports, and 44% of organic chemical imports. GTRI Founder Ajay Srivastava noted, "These are not discretionary purchases but core inputs that feed directly into India's manufacturing ecosystem." He added that Indian manufacturers rely significantly on Chinese inputs such as electronics parts, EV batteries, solar modules, APIs, and specialty chemicals. "As a result, even as India tries to grow exports, its supply chains remain tied to China. This creates clear risks," he said.
GTRI's Recommendations
GTRI warned that heavy reliance on a single country for critical industrial inputs leaves sectors such as pharmaceuticals, electronics, and clean energy vulnerable to disruptions, whether geopolitical or commercial. The think tank also raised concerns that easing Chinese investment restrictions could deepen this dependence. Chinese firms, especially in sectors like electric vehicles, may expand through local assembly while continuing to import key components from China, potentially reducing domestic value addition and putting pressure on Indian manufacturers.
To mitigate these risks, GTRI recommends that India build stronger domestic manufacturing capabilities and diversify sourcing. "The policy challenge is clear. India needs to build domestic capacity in key sectors and diversify supply chains. A practical starting point would be to limit dependence on any single country to below 30% of imports in critical sectors," the report added.
