India’s China Trade Tilt Raises Supply Chain Risks 

India’s trade relationship with China is becoming increasingly one-sided, with imports surging even as exports struggle to recover. 

In 2025-26, India’s exports to China stood at $19.5 billion—still below the $21.2 billion recorded in 2020-21. Imports, by contrast, have more than doubled over the same period, rising from $65.2 billion to $131.6 billion. The result is a sharply widening trade deficit, which has expanded from $44 billion to $112.1 billion—a 155% increase in just five years.

Industrial Imports
The imbalance is not merely about trade volumes; it reflects a highly skewed sectoral dependence. According to DGCI&S data for 2025, 98.5% of India’s imports from China are industrial products, with agriculture, fuels, and gems and jewellery together accounting for less than 1.5%.

While China represents about 16% of India’s total imports, its dominance is far more pronounced in industrial goods, where it supplies 30.8% of India’s requirements.

Sector Concentration
The concentration within sectors is even sharper. About 66% of India’s imports from China—valued at $82.6 billion—are clustered in electronics, machinery, computers, and organic chemicals.

China accounts for 43% of India’s electronics imports, 40% of machinery and computer imports, and 44% of organic chemicals. These are not discretionary purchases but core inputs that feed directly into India’s manufacturing ecosystem.

Supply Dependence
This dependence is less about consumption and more about weak domestic production. Indian industry relies heavily on Chinese inputs—electronics components, EV batteries, solar modules, APIs and specialty chemicals—that are hard to replace at scale. As a result, even as India seeks to expand exports, its supply chains remain tied to China.

This creates clear risks. Dependence on a single supplier for critical inputs leaves sectors like pharmaceuticals, electronics and clean energy exposed to disruptions, whether geopolitical or commercial. At the same time, India’s exports to China remain limited, keeping the relationship one-sided.

Investment Risks
As India eases investment restrictions on China, Chinese automakers are likely to expand through local assembly and increased EV imports if tariffs fall, putting pressure on Indian firms and reshaping supply chains. Chinese companies may continue sourcing key inputs—such as auto components, batteries, polymers, coatings and adhesives—from China rather than local suppliers. 

This could reduce domestic value addition and hurt upstream industries. A similar trend has already been seen in Thailand.

Diversification Target
The policy challenge is clear. India needs to build domestic capacity in key sectors and diversify its supply chains. A practical starting point would be to limit dependence on any single country to below 30% of imports in critical sectors.India’s trade with China is no longer just a deficit story; it is a production-dependence story. Exports to China remain below 2020-21 levels at $19.5 billion, while imports have more than doubled to $131.6 billion, pushing the deficit up 155% to $112.1 billion in five years. 

More concerning is the composition: 98.5% of imports from China are industrial goods, and four sectors—electronics, machinery, computers and organic chemicals—alone account for $82.6 billion. China supplies 43% of India’s electronics imports, 40% of machinery and computer imports, and 44% of organic chemicals, underscoring how deeply Indian manufacturing is plugged into Chinese supply chains. 

This dependence exposes India’s pharmaceuticals, electronics, EV, solar and clean-energy sectors to serious disruption risks. If Chinese investment expands without strong local sourcing rules, India may gain assembly plants but not deep manufacturing capabilities. 

India needs a clear diversification strategy: build domestic capacity, attract non-China suppliers, and keep single-country dependence below 30% in critical sectors.