India’s Growing Trade Deficit With China

Despite bilateral trade having grown between India and China over the years, it has also led to a major trade deficit between the two countries. Data from India’s Department of Commerce shows that in the financial year 2024-25, India's trade deficit with China surged to $99.2 billion, having more than doubled from the $44 billion gap recorded in FY2020-21. Major trade imbalances between countries are generally considered a concern as they can exacerbate a country’s dependency on the leading exporter.

According to the Embassy of India in Beijing, India's main exports of the past five years have been iron ore, light naphtha, p-xylene, shrimps and castor oil. China’s main exports have been machinery, electronics, personal computers, monolithic integrated circuits, parts of telephonic/telegraphic equipment, lithium-ion and fertilizers.

Since bilateral investment has lagged behind trade growth, analysts note that easing restrictions on Chinese foreign direct investment (FDI) could help India better integrate into global value chains, strengthen its export capacity and potentially help India narrow its trade deficit with China.