Indian exports to China rise in 2025 but trade deficit touches record high of $116 billion

The news highlighting India's rising exports to China in 2025, alongside a record-high trade deficit of USD 116.12 billion, presents a complex picture of India's economic engagement with its largest trading partner. While the increase in exports to USD 19.75 billion and a record bilateral trade volume of USD 155.62 billion might appear positive at first glance, the widening deficit underscores persistent structural challenges in India's trade relationship with China.

**Background Context and Historical Trajectory:**

India and China, two ancient civilizations and modern economic powerhouses, have seen their trade relations evolve dramatically over the past few decades. Post India's economic liberalization in the early 1990s, trade with China grew exponentially. Initially, India primarily exported raw materials and primary goods like iron ore, cotton, and plastics, while importing finished manufactured goods, electronics, and machinery from China. This pattern quickly led to a trade imbalance, which has only exacerbated over time. Despite various governmental efforts to diversify exports and reduce reliance on Chinese imports, the deficit has consistently widened. This trade dynamic exists against a backdrop of complex geopolitical relations, marked by border disputes (e.g., Galwan Valley clash in 2020) and strategic competition in the Indo-Pacific region. India's ‘Make in India’ initiative, launched in 2014, and the more recent ‘Atmanirbhar Bharat Abhiyan’ (Self-Reliant India Campaign) in 2020, were partly conceived to bolster domestic manufacturing and reduce import dependence, particularly from China.

**What Happened and Key Stakeholders:**

In 2025, India's exports to China reached USD 19.75 billion, a notable rise. This contributed to a record bilateral trade volume of USD 155.62 billion. However, the crucial point is the all-time high trade deficit of USD 116.12 billion. This signifies that for every dollar India earned by exporting to China, it spent approximately six dollars on imports. The primary stakeholders in this scenario include:

1. **Indian Government (Ministry of Commerce & Industry, Ministry of Finance, Ministry of External Affairs):** Responsible for formulating foreign trade policies, negotiating trade agreements, and managing the overall economic health and geopolitical strategy. They face the challenge of balancing economic engagement with strategic concerns.

2. **Chinese Government:** Dictates its own trade policies, often leveraging its massive manufacturing capacity and supply chain efficiencies to maintain a competitive edge.

3. **Indian Exporters:** Businesses that benefit from increased access to the Chinese market, often in sectors like agricultural products, organic chemicals, and certain raw materials.

4. **Indian Industries (especially MSMEs):** Many domestic industries struggle to compete with cheaper Chinese imports, impacting their growth, profitability, and job creation potential.

5. **Indian Consumers:** Benefit from a wide array of affordable Chinese products, but this comes at the potential cost of supporting domestic industries.

**Significance for India:**

This record trade deficit carries profound implications for India:

* **Economic Impact:** A large trade deficit drains India's foreign exchange reserves, can put downward pressure on the Indian Rupee, and contribute to inflationary pressures. It stifles the growth of domestic manufacturing, especially in sectors where China has a dominant presence (e.g., electronics, active pharmaceutical ingredients, machinery). This also impacts job creation within India.

* **Geopolitical and Strategic Dependence:** A significant reliance on Chinese imports, particularly for critical components and raw materials (e.g., solar panels, mobile phone components, bulk drugs), creates strategic vulnerability. In times of geopolitical tension, such dependence can be exploited.

* **Policy Effectiveness:** It raises questions about the effectiveness of existing policies like 'Make in India' and 'Atmanirbhar Bharat' in achieving their stated goals of reducing import dependence and boosting indigenous production. While exports have risen, imports have grown even faster, indicating a gap in policy implementation or structural issues within Indian industry.

**Constitutional & Policy References:**

While there isn't a direct constitutional article governing trade deficits, the overarching framework for foreign trade is established by the Constitution. **Article 301** guarantees freedom of trade, commerce, and intercourse throughout the territory of India, which implicitly covers foreign trade regulations. Furthermore, **Entry 41 of the Union List (Seventh Schedule)** grants the Parliament exclusive power to legislate on “Trade and commerce with foreign countries; import and export across customs frontiers; customs.”

Key policies and acts relevant to this issue include:

* **Foreign Trade Policy (FTP):** The government periodically announces FTPs to provide a framework for increasing exports and facilitating trade.

* **Customs Act, 1962:** Governs the levy and collection of customs duties on imports and exports.

* **Make in India & Atmanirbhar Bharat Abhiyan:** Flagship initiatives aimed at making India a global manufacturing hub and reducing reliance on imports.

* **Production Linked Incentive (PLI) Schemes:** Introduced across various sectors to boost domestic manufacturing and make Indian industries globally competitive, thereby reducing imports and increasing exports.

**Future Implications:**

Addressing this persistent trade imbalance will require a multi-pronged strategy. India will likely continue to:

1. **Boost Domestic Manufacturing:** Further strengthen PLI schemes and other incentives to enhance competitiveness in key sectors, particularly those with high import dependency from China.

2. **Diversify Export Basket and Markets:** Focus on exporting high-value-added products to China and exploring new markets to reduce overall reliance on a single trading partner.

3. **Improve Ease of Doing Business:** Streamline regulations, improve infrastructure, and reduce logistics costs to make Indian products more competitive both domestically and internationally.

4. **Engage in Strategic Trade Diplomacy:** Negotiate for better market access in China for Indian products and potentially explore alternative supply chains under the 'China Plus One' strategy, aligning with global efforts to de-risk supply chains.

5. **Invest in Research & Development:** Foster innovation to create technologically advanced products that can compete globally, rather than solely relying on raw material exports.

The increasing trade deficit, despite rising exports, serves as a critical economic barometer, signaling the need for India to accelerate its structural reforms and industrial policies to achieve true self-reliance and a more balanced global trade position.