China has emerged as India’s largest trading partner for the financial year 2025-26, with total bilateral trade reaching a historic USD 151.1 billion. This shift marks the end of a four-year period where the United States held the top position, following a significant surge in both imports and exports between the two neighbors. While the trade volume has expanded, the development is accompanied by a record-high trade deficit that highlights India’s ongoing structural dependence on Chinese industrial inputs.
Rise of China as India’s Primary Trading Partner
The financial year 2025-26 witnessed a major realignment in India’s global trade dynamics as bilateral commerce with China grew by nearly 18% compared to the previous year. According to the data released by the Ministry of Commerce and Industry, China regained the top spot it last held in 2020-21. For the four intervening years between 2021-22 and 2024-25, the United States remained India’s largest trading partner.
Historically, India’s top trading partner status has moved between the United Arab Emirates (UAE), China, and the United States. During the mid-2010s, China dominated the trade landscape before the US emerged as a preferred partner, largely due to growing exports in services and high-value manufactured goods. However, the surge in imports of capital goods and intermediate industrial components from China has tipped the balance once again in its favor.
The Widening Trade Gap: Deficit Hits Record High
Despite a robust 36.66% growth in India’s exports to China, reaching USD 19.47 billion, the trade gap between the two nations has widened to a record USD 112.16 billion. This marks the first time that India’s trade deficit with a single country has crossed the USD 100 billion milestone. In comparison, the trade deficit for the previous fiscal year, FY2024-25, stood at USD 99.2 billion.
The following table highlights the trade trajectory between India and China over the last few years:
| Financial Year | Total Trade (USD Billion) | India’s Exports (USD Billion) | India’s Imports (USD Billion) | Trade Deficit (USD Billion) |
|---|---|---|---|---|
| 2021-22 | 116.13 | 21.56 | 94.57 | 73.01 |
| 2022-23 | 113.82 | 15.31 | 98.51 | 83.20 |
| 2023-24 | 118.40 | 16.66 | 101.74 | 85.08 |
| 2024-25 | 127.71 | 14.25 | 113.46 | 99.21 |
| 2025-26 | 151.10 | 19.47 | 131.63 | 112.16 |
This persistent deficit is a point of concern for Indian policymakers as it reflects a merchandise trade imbalance. While India maintains a surplus in services trade, the heavy reliance on imported goods from China continues to pressure the overall current account balance.
Sectoral Analysis: What India Buys and Sells
The trade relationship is characterized by a “raw-material-for-manufactured-goods” pattern, though recent shifts show more complexity in high-tech sectors.
Powering the Factory: Top Imports from China
India relies heavily on Chinese supply chains for critical industrial inputs. The largest import categories include:
- Electrical and Electronic Equipment: This is the dominant category, covering everything from mobile phone components and integrated circuits to semiconductors and telecom instruments.
- Machinery and Mechanical Appliances: This includes industrial boilers, engines, and automated data processing machines essential for India’s infrastructure and manufacturing sectors.
- Chemicals and Pharmaceutical Raw Materials: China is the primary supplier of Active Pharmaceutical Ingredients (APIs) and intermediate chemicals, which are vital for the Indian pharmaceutical industry.
- Project Goods and Metals: Steel, iron, and various plastic resins are also imported in large volumes to support the construction and packaging industries.
Raw Materials and Intermediates: India’s Export Basket
India’s exports to China saw a significant jump in FY2025-26, driven by a few key sectors:
- Petroleum Products: There was a notable surge in the export of light oils and refined petroleum preparations.
- Mineral Ores: Iron ore remains a foundational export item, although its volume fluctuates based on global pricing and domestic demand in China.
- Agricultural and Marine Products: India exports large quantities of frozen shrimp, spices (particularly dried chilies), and oil meals.
- Electronic Components: Interestingly, under the Production-Linked Incentive (PLI) schemes, India has started exporting certain sub-assemblies and electronic components back to China, marking a new phase in the bilateral supply chain.
The Geopolitical and Economic Shift: China vs USA
The return of China as India’s top trading partner comes at a time when trade with the United States showed signs of moderation. In FY2025-26, India’s exports to the US grew marginally by 0.92% to reach USD 87.3 billion. Conversely, imports from the US rose by 15.95% to USD 52.9 billion, leading to a narrowing trade surplus of USD 34.4 billion, down from USD 40.89 billion in the previous year.
While the US remains India’s largest export destination and a critical partner for services and technology, China’s core strength lies in its role as the “world’s factory.” India’s industrial push, supported by initiatives like Make in India, has ironically increased the short-term demand for Chinese capital goods and intermediate components required to set up domestic manufacturing lines.
Strategic Implications and the Road to Self-Reliance
To address the heavy reliance on Chinese imports and the widening trade deficit, the Government of India has implemented several strategic measures. The Production-Linked Incentive (PLI) schemes across 14 key sectors (such as electronics, pharmaceuticals, and white goods) are designed to encourage domestic production and reduce the need for foreign imports.
Furthermore, the “China+1” strategy, adopted by global and Indian firms, seeks to diversify supply chains away from a single-country dependence. While the trade data for FY2025-26 shows a surge in volume, much of the imported equipment and technological components are seen as “enablers” that will eventually help India achieve greater self-reliance under the Atmanirbhar Bharat mission. The transition toward domestic value addition, particularly in the electronics component manufacturing space, is expected to be the next major focus to bridge the trade gap.
Key Takeaways
- China became India’s largest trading partner in FY2025-26, replacing the United States which held the position from FY2021-22 to FY2024-25.
- Total bilateral trade between India and China reached a historic record of USD 151.1 billion during this period.
- India’s trade deficit with China widened to an all-time high of USD 112.16 billion, marking the first time the gap with a single country has exceeded the USD 100 billion mark.
- Exports from India to China grew by 36.66% to USD 19.47 billion, while imports from China increased by 16% to reach USD 131.63 billion.
- Major Indian imports from China include electrical and electronic equipment, industrial machinery, and Active Pharmaceutical Ingredients (APIs).
- India’s trade surplus with the United States narrowed to USD 34.4 billion in FY26 as export growth slowed to 0.92%.
