GS2 – International Relations
Context
- In 2024–25, India’s trade deficit with China stood at $99.2 billion, accounting for about 35% of India’s total trade imbalance.
- Bilateral trade remains skewed, with China dominating India’s imports across multiple sectors.
Why the Deficit is a Concern?
- Structural Dependence: Heavy reliance on China for critical sectors like pharmaceuticals, electronics, renewable energy, construction, and consumer goods.
- Critical Inputs:
- Erythromycin – 97.7% from China
- Silicon wafers – 96.8%
- Flat panel displays – 86%
- Solar cells – 82.7%
- Lithium-ion batteries – 75.2%
- Everyday Goods: Laptops (80.5%), embroidery machinery (91.4%), viscose yarn (98.9%) majorly sourced from China.
Risks of Growing Dependence
- Strategic Leverage: China could use supply chains as a pressure tool in times of geopolitical tensions.
- Declining Exports: India’s share in bilateral trade has fallen to 11.2% (from 42.3% two decades ago).
- Industrial Weakness: Reliance on cheap imports undermines domestic manufacturing, reduces competitiveness, and raises vulnerability.
Economic Impact of Rising Deficit
- Pressure on forex reserves due to high import bills.
- Currency depreciation leading to higher import costs and inflation.
- Industrial hollowing out – long-term slowdown of domestic industries and manufacturing growth.
Policy Measures Taken
- Production Linked Incentive (PLI) Schemes: Across 14 sectors to boost local manufacturing capacity.
- Stricter Quality Standards: Certifications and testing protocols to filter substandard imports.
- Supply Diversification: Encouragement of alternative supply chains beyond China.
- Import Monitoring: DGTR oversight to check sudden import surges.
- Anti-dumping Duties: Applied on Chinese goods such as chemicals, engineering items, etc.