Mint Explainer: The mystery behind India’s flourishing trade with China

Data recently released by the commerce ministry show that India’s imports from China grew by more than 3% in 2023-24 even as the country’s total merchandise goods purchases from overseas fell by almost 6%. Similarly, India’s exports to China climbed nearly 9% while total exports contracted by almost 3%. 

India’s imports from China, which are multiple times its exports to that country, crossed the $100-billion mark in 2023-24 after coming close to that level in the preceding two years, despite measures to lower dependence on the northern neighbour and boycott calls by sections of trade.

Mint takes a close look at data to find what constitutes trade between India and China.

Electronics and machinery

Broadly, trade between the two neighbours includes electronic and electrical goods, machinery, chemicals and fertilisers, iron, steel and aluminium, plastics, and many smaller-value items such as grooming products and tableware. 

Electronic integrated circuits and microassemblies, semiconductors and diodes, and printed circuits, all of which have a wide variety of applications, together with communication apparatus including telephone sets, accounted for more than 45% of imports by value.

Also read | The China challenge: Fix India’s lopsided bilateral trade

Item-level trade data available till February show that China was the primary source of imports for several goods, sometimes accounting for more than 50% of the imports. For instance, about 50% or more of electric motors and generators, electric transformers, electric accumulators (mostly batteries) and their parts, are imported from China, which has a dominating presence in the power sector. 

Import of lithium-ion batteries, mostly used in electric vehicles, exceeded $2 billion, and that’s about 75% of such imports.

Smartphone imports drop

The imports of items such as mobile phones have dropped as India became a major production centre due to the government’s production-linked incentive scheme. The import of smartphones from China also declined by nearly 35% in the April-February period to 1.48 million units from 2.26 million units in the corresponding year-earlier period, although the value of imports climbed 8% to $853 million.

Of the small appliances, although only a small quantity is imported, about 90% of these by value originate in China. These include food grinders, food processors, mixers and juicers. So do about 80% of the vacuum cleaners. Also, over 50% of personal grooming items such as shavers, hair clippers and epilators originate in China. 

Computers and laptops were another big item of import, goods worth more than $4 billion were procured from China. Together with peripherals, the value of computer hardware imported from China in 2023-24 was worth about $8 billion.

Oil and fish for China

The value of India’s exports to China is less than a fifth of what is imported. Petroleum products and marine products are the main exports.

Other goods exported to China include iron and steel, organic chemicals, residual chemicals and allied products and aluminium and its products.

Also read | Chinese stuff at Indian telcos: An old chapter reopens

Why is India's trade so dependent on China?

India’s dependence on China increased as import liberalisation coincided with the latter’s emergence as a highly competitive mega factory for all kinds of industrial and consumer goods. 

For Indian companies handicapped by smaller production capacity, higher costs and limitations posed by the reservation policy for small-scale units in the 1990s and early 2000s, imports became profitable. For instance, small appliances companies preferred cheaper imports to domestic production.

Over the years, as global companies shifted their production lines to China, the world’s dependence on China for factory products rose. Until recently, Apple’s iPhone was largely manufactured in China. As India’s growth gathered pace, so did the reliance on China for intermediate, capital and consumer goods.

Can India temper this reliance on China?

The Indian government has taken multiple measures to reduce reliance on China under Atmanirbhar Bharat Abhiyan, an initiative meant to make Indian trade self-reliant. 

These measures include import restrictions on some items such as LCD and LED panel televisions, and production-linked incentive schemes for a range of goods from domestic appliances and mobile phones to drug intermediates, solar photovoltaic modules and batteries. 

Some of these measures are yielding results—India has become the world's second-largest maker of mobile phones.

However, as China continues to dominate manufacturing despite the global efforts to diversify production lines to other low-cost centres such as Southeast Asian countries, India’s dependence on Chinese goods will likely continue for several years.