India’s trade deficit with China has risen to an all-time high, nearing the $100 billion in the fiscal year that ended on March 31, 2025. This sharp rise comes due to a sharp fall in Indian exports to China and a surge in Chinese imports, according to the data released by the Commerce Ministry on Wednesday.

India exported goods worth $14.25 billion to China in 2024-25, which was a 14.4% decline compared to $16.66 billion in the previous year. At the same time, imports from China shot up by 11.5%, reaching $113.45 billion, up from $101.73 billion in 2023-24. This mismatch pushed the trade deficit to a record $99.2 billion.

Two senior officials working with India’s trade policies raised concerns that the situation might worsen further. After the new decision made by the United States to impose a 245% duty on Chinese imports, Indian officials fear that Chinese exporters might find a way to route their goods to India, either directly or through other countries.

The Indian government has launched an import monitoring system that aims at preventing large-scale export of Chinese goods to regulate this situation. The same will also be implemented to imports from ASEAN countries, as Chinese products may enter India through the regional free trade agreement.

Beijing to Address Concerns

According to sources in the Indian foreign trade department, China has informally reached out to India to express interest in narrowing the trade gap. Beijing has reportedly proposed removing certain tariff and non-tariff barriers to allow more Indian products into the Chinese market. According to a report released by Hindustan Times on April 12, discussions related to it had begun on a preliminary level.

Compounding of the Deficit

Tensions between China and the United States worsened after the Trump administration, on April 15, responded to China’s restrictions on the export of rare earth elements and critical minerals by putting a massive 245% tariff on Chinese imports. A White House fact sheet stated that China was attempting to “choke off supplies” of vital industrial components and the U.S. action was a response to that.

This development could lead to a surge of Chinese goods into other large markets, including India. Indian authorities are preparing for this possibility, especially as sectors like electronics, electric vehicle batteries, and solar equipment are dominated by China and are increasingly in demand within the country.

Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), warned that the growing trade deficit shows far more than a simple imbalance in exports and imports. “India’s rising trade deficit with China hit a record gap that reflects deeper structural dependencies,” he said.

Srivastava explained that Chinese products dominate India’s supply chain in nearly every key industrial category, from electronics to pharmaceutical ingredients. He added, “The PLI (production-linked incentive) schemes, while designed to boost Indian manufacturing, are ironically fuelling imports due to their reliance on foreign components.”

The continued fall in Indian exports to China is even more alarming. “India’s exports to China dropped by 14.5%, now falling to levels even lower than they were in FY2014, back when the rupee was stronger. This is more than just a trade imbalance. It highlights a larger crisis of competitiveness. If we don’t invest seriously in building our industrial strength, this gap will keep growing,” Srivastava added. 

Trade Gap Since Covid

India’s trade imbalance with China has been on the rise for several years. In 2019-20, just before the pandemic, the deficit stood at $48.65 billion. It dropped slightly to $44 billion in 2020-21 due to the global economic slowdown, but since then, the gap has widened, rising to $73.31 billion in 2021-22, $83.2 billion in 2022-23, and $85.08 billion in 2023-24. With the new figures for FY2024- 25, the deficit now stands at a heightened amount of $99.2 billion.

Imports and Exports

India imports a wide range of goods from China including electronic parts, telecom and computer hardware, organic chemicals, electrical machinery, dairy machinery, plastic raw materials, pharmaceutical ingredients, and lab instruments. On the other hand, India’s exports to China are limited in range, like raw materials and low-value products such as iron ore, marine products, petroleum products, organic chemicals, spices, castor oil, and some telecom equipment.

Officials warn that structural changes are needed, otherwise the deficit could soon cross the $100 billion mark.