India's economic relationship with China has become increasingly imbalanced, with a significant trade deficit that has ballooned from $44 billion in 2020 to an alarming $112 billion in 2023. Despite efforts to reduce reliance on Chinese imports, the country remains heavily dependent on China for critical industrial products.
Background
In an effort to boost local manufacturing and limit substandard imports, India raised tariffs on imported toys from 20% to 60%, and eventually to 70%. This move resulted in a one-third reduction in toy imports, dropping from nearly $300 million in 2020 to $100 million in 2023. Conversely, exports increased from around $129 million to $200 million during the same period.
However, this success in the toy sector stands in stark contrast to the overall trade relationship with China, which remains one of the most asymmetric in the world.
Current Trade Dynamics
Despite the breakdown of diplomatic ties following the Galwan Valley clashes in 2020, India's trade deficit with China has continued to grow.
“"India's economic dependence on China continued to deepen while political, security, and investment ties were at their lowest point," said Kevin Zongzhe Li, a Fellow at the Asia Society Policy Institute.
Currently, China supplies over 30% of India's industrial imports, and the country relies on it for more than 100 critical products. If the trend of increasing imports persists, the bilateral deficit could reach $134 billion, further enhancing China's leverage over Indian industry, according to Ajay Srivastava of the Global Trade and Research Initiative (GTRI).
