India’s Trade Deficit with China Hits Record $99.2 Billion in FY25. Here's What You Need To Know About It
India’s trade deficit with China soared to an all-time high of $99.2 billion in FY25 due to rising imports and falling exports. Explore the causes, economic implications, and government response.
kowshik Reddy
The trade deficit between India and China has now reached a record mark of $99.2 billion in FY 2024-25, reflecting an increase of 17% over the previous year's figure of $85.07 billion. This spiraling trade imbalance speaks of the increasing economic interdependence of the two countries, and the situation alarms India about its import dependence on China.
Some of the Causes for the Growing Deficit:
1. Spike in Imports:
Imports from China into India grew 11.5%, touching $113.45 billion in FY25. A sharp rise in imports of electronics, electric batteries, and solar cells, which increased over 25% year-on-year just in the month of March, was the significant contributor to the rise.
2. Decline in Exports:
Conversely, India's exports to China were diminished by 14.5%, equating to $14.25 billion in FY25, as against $16.66 billion in FY24. The decrease demonstrates the inadequacies of Indian export competitiveness and market access in China.
3. Diversion of Chinese Goods:
Tariffs raised on some Chinese goods in America amidst fears raised the prospect that Chinese exporters might be redirecting some products into other markets-India included-which could further aggravate the trade imbalance.
Consequences for the Indian Economy:
Economic Dependence:
The mounting deficit indicates India's structural dependence on Chinese inputs, especially in electronics and pharmaceuticals, where domestic production is greatly reliant on Chinese components.
Policy Measures:
Accordingly, the government of India is contemplating creating a unit to monitor and restrict low-priced imports being dangled before domestic companies who may assist in flouting U.S. taxes.
Conclusion:
The record deficit for FY25 with China underscores the pressing need for India to review its trade strategy and enhance domestic manufacturing capability. An effort needs to be made to address the trade imbalance in order to achieve export competitiveness, minimize import dependency, and deal with the complexities around global trade.
