India has spent years trying to cut its dependence on Chinese imports. In a few sectors, the strategy has worked. But across much of the industrial economy, dependence on China has only become deeper.
The contrast is clearest in toys. India raised import duties on toys from 20% to 60% and later to 70%, while also tightening quality standards. Imports fell sharply, exports increased and China’s once-dominant share of the Indian toy market declined.
But that success has proved difficult to replicate elsewhere. India’s trade deficit with China has widened from around $44 billion in 2020 to nearly $112 billion this year. Indian exports to China remain below pre-pandemic levels, while imports have almost doubled.
The biggest concern is that India is no longer dependent on China mainly for finished consumer goods. Chinese components, intermediate goods, raw materials and machinery are now deeply embedded in Indian manufacturing.
China supplies more than 30% of India’s industrial imports, while India depends on it for more than 100 critical products. Electrical machinery and electronics account for around 36% of India’s imports from China. Machinery and mechanical appliances make up another 21.7%, while organic chemicals and plastics also contribute significantly.
This means any disruption in Chinese supplies could affect not just consumption but production inside Indian factories.
India has made visible progress in sectors such as smartphones and solar equipment. The country has emerged as a major manufacturing base for smartphones and now produces a significant share of the world’s iPhones.
But much of this production is still assembly-led. Factories in India continue to rely heavily on imported components, especially from China. Similar dependence exists in battery materials, industrial machinery, chemicals, solar cells and manufacturing equipment.
So while imports of finished products may have fallen in some categories, dependence has often shifted deeper into the supply chain.
The imbalance is also being driven by changes inside China. Chinese manufacturers have built huge capacity in sectors such as steel, solar panels and electric vehicles. With domestic demand slowing, more of this production is being pushed into overseas markets.
India is an obvious destination because its own manufacturing sector is expanding and needs machinery, equipment and intermediate goods.
Trade restrictions imposed by the US and other Western markets could also divert more Chinese exports towards countries such as India. China’s overall trade surplus is expected to remain above $1 trillion for a second consecutive year, highlighting the scale of its export strength.
The problem is not just rising imports. Indian companies have also struggled to expand exports to China.
Tariff and non-tariff barriers continue to limit access to the Chinese market, making it difficult for Indian companies to achieve scale. That has become more important as diplomatic relations between New Delhi and Beijing begin to improve.
Prime Minister Narendra Modi and Chinese President Xi Jinping have agreed to address structural trade imbalances and supply-chain concerns. But better political relations alone may not change the economic equation.
Without wider market access for Indian products, the trade relationship could remain heavily tilted in China’s favour.
India’s long-term solution lies in producing more of what it currently imports. That will require stronger domestic manufacturing capabilities, backed by affordable power, cheaper credit, better logistics and predictable regulation.
Sector-specific industrial policies may also be necessary in areas where dependence is particularly high.
India has also begun easing some restrictions on foreign investment, potentially allowing more Chinese companies to invest locally. But the nature of those investments will be crucial.
If Chinese companies simply assemble products in India using imported components, dependence could increase further. Investments that bring technology transfer, local component manufacturing, higher domestic value addition and export capacity would be far more beneficial.
India’s toy industry shows that dependence on China can be reduced when tariff policy, quality standards and local manufacturing incentives work together.
Toy imports have fallen from nearly $300 million in 2020 to about $100 million this year, while exports increased from roughly $129 million to $200 million.
But replicating that success in electronics, machinery, chemicals and energy equipment will be far harder.
India’s China challenge is therefore no longer simply about reducing imports. It is about ensuring that the country’s manufacturing expansion does not become increasingly dependent on Chinese inputs.
That may prove to be one of the biggest tests of India’s industrial policy in the years ahead.