India is facing a widening trade deficit with China as the influx of goods from its neighbour continues to climb, according to the latest data from the commerce department. Between April and August 2026, the trade deficit with China reached approximately $56 billion, compared to $44.7 billion during the same period in 2025. At this trajectory, the annual deficit is on track to surpass the $112 billion mark recorded in the 2025-26 fiscal year.
A significant driver of this trend is the growing demand for electric vehicles (EVs) in India, which has directly correlated with a rise in battery imports from China. These imports nearly doubled to $2.9 billion during the April-August period, becoming the sixth-largest import category. Analysts note that with global technological hurdles remaining, domestic battery production often involves merely packing cells manufactured in China, as local efforts under the Production Linked Incentive (PLI) scheme have struggled to gain traction.
The automotive sector has also seen a marked increase in reliance on Chinese products. Import values for two- and three-wheelers surged to $107 million, a substantial jump from just $2 million during the same period last year. Similarly, car imports rose 2.6 times to $226 million, compared to $87 million in the corresponding period of the previous fiscal year. These shifts appear to be driven by companies such as BYD, highlighting the competitive advantage held by Chinese manufacturers in the electric mobility value chain.
Despite efforts to boost domestic production of electronics, computers, and mobile devices, the reliance on Chinese inputs remains entrenched. Telecommunications equipment and electronic components have experienced import growth exceeding 40% in the first five months of the fiscal year. Other sectors, including dye intermediates, bulk minerals, and oil products, have also reported significant increases in import volumes, though they represent a smaller fraction of the total trade compared to electronics and chemicals.
The current situation has drawn attention from the highest levels of government. Both Finance Minister Nirmala Sitharaman and Commerce and Industry Minister Piyush Goyal have recently voiced concerns, advocating for a "fair deal" in trade relations. While Indian exports have grown by 40% this year, the volume remains small, with average monthly exports staying below $2 billion during the April-August window.
Economists point to the systemic challenge posed by China’s integrated manufacturing model. Paul Grunwald, chief economist at S&P Global, noted that China occupies the entire spectrum of the manufacturing ladder, effectively blocking other nations from ascending into those segments. This creates a difficult environment for India to substitute Chinese goods, particularly given the cost advantages and subsidies available to Chinese firms.
Ajay Srivastava, founder of the trade think tank GTRI, warned that an abrupt halt in Chinese trade would severely impact critical domestic industries such as pharmaceuticals and electronics. He emphasized that the path forward requires deepening local manufacturing capacity to reduce dependency. Until such domestic capabilities are established, the industry remains cautious, often petitioning the government against strict import checks that could disrupt existing supply chains.
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