India’s Worrying Economic Dependence On China

India’s trade deficit with China hit $85.1 billion in fiscal year 2024, underscoring growing economic concerns. Imports from China surged while exports to China fell to just $8 billion.

This widening gap highlights India’s deep reliance on Chinese goods across critical sectors like electronics, telecom, solar energy, and electric vehicles.

China’s dominance in India’s import basket is striking, with Chinese goods accounting for roughly 15% of India’s total imports. Key industrial sectors depend heavily on China and Indias small and medium enterprises (SMEs) face fierce competition from cheaper Chinese alternatives.

Domestic efforts to curb dependence, such as the Production Linked Incentive (PLI) schemes, have shown limited success. SMEs often lack the scale and competitiveness to substitute imports, leaving India vulnerable to trade imbalances.

To address this challenge, India must diversify its supply chains, implementing a China-plus-one strategy by strengthening ties with alternative trade partners and attracting foreign direct investment (FDI) in critical industries.

Expanding PLI schemes to additional sectors and negotiating favorable trade agreements, particularly with countries like the UK, could bolster Indias manufacturing capabilities and reduce reliance on Chinese imports.

The upcoming Union Budget will play a critical role in shaping policies to address this pressing issue. By focusing on supply chain diversification, domestic manufacturing, and strategic trade partnerships, India can work toward reducing its economic dependence on China and ensuring long-term stability.