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Trade Analysis — FY2025-26
What this article covers: China has overtaken the United States to become India’s largest trading partner in FY2025-26, with total bilateral trade reaching $151.1 billion. At the same time, the trade deficit with China has hit an all-time record of $112.16 billion. Meanwhile, India and the US are in advanced talks on a Bilateral Trade Agreement targeting $500 billion in trade by 2030. This article breaks down the numbers, explains what drove the shift, examines what India actually imports from China and why, and assesses what the US-India trade reset means for the road ahead.
Table of Contents
- Quick Snapshot: The Core Story at a Glance
- Part I: The Numbers That Tell the Story FY26 bilateral trade data, how China compares with the US, historical context
- Part II: What India Imports from China and Why It Cannot Stop Electronics, APIs, solar, machinery; why de-risking is harder than it sounds
- Part III: What India Exports to China Commodities, chemicals, the 36.66% export surge, and what it means
- Part IV: The Trade Deficit Reality The $112 billion gap, year-on-year growth, historical trajectory
- Part V: The US Angle — Trade Reset or Just Rhetoric? BTA framework, tariff timelines, the $500 billion target, what changes
- Part VI: What This Means for India’s Strategic Posture De-risking vs decoupling, PLI performance, what policymakers face
- Key Takeaways at a Glance
- Frequently Asked Questions
Quick Snapshot: The Core Story at a Glance
India spent nearly four years framing China as an economic risk to be managed and reduced. The Galwan valley clashes of 2020 triggered bans on Chinese apps, tighter FDI scrutiny, and ambitious domestic manufacturing initiatives. The rhetoric of “de-risking” became central to India’s economic positioning. Then the numbers arrived.
In FY2025-26, India’s total trade with China reached $151.1 billion. That figure surpassed India’s total trade with the United States, which came to $140.2 billion (exports of $87.3 billion plus imports of $52.9 billion). China has therefore reclaimed its title as India’s largest trading partner, a position it previously held between 2013-14 and 2017-18, and again in 2020-21. China also marginally edged past the US in FY2023-24 ($118.4 billion vs $118.3 billion). The US held the top spot clearly in FY2021-22 and FY2022-23, and reclaimed it in FY2024-25.
However, the headline figure masks a crucial imbalance. India’s imports from China in FY26 reached $131.63 billion, while India’s exports to China came to just $19.47 billion. The resulting trade deficit of $112.16 billion is the largest India has ever recorded with any single country in any single year. For context, India’s total merchandise trade deficit with the entire world in FY26 stands at approximately $333 billion. China’s bilateral deficit alone accounts for roughly one-third of that total figure.
$151.1B
India-China total trade in FY2025-26
$140.2B
India-US total trade in FY2025-26 (calculated: $87.3B + $52.9B)
$112.16B
India’s trade deficit with China in FY26 (all-time record)
36.66%
Growth in India’s exports to China in FY26
Part IThe Numbers That Tell the Story
FY2025-26: The Full Trade Picture
India’s commerce ministry data for FY2025-26 lays out a clear picture. China leads with $151.1 billion in total bilateral trade. The US follows with $140.2 billion. Both countries are India’s two dominant trading partners by a wide margin. Yet their structural relationships with India differ sharply.
With China, India runs a massive deficit. India imports vastly more than it exports. With the US, the dynamic reverses. India exported $87.3 billion to the US in FY26, against imports of just $52.9 billion. India therefore runs a trade surplus of $34.4 billion with the US. That surplus, however, declined from $40.89 billion in FY25, partly because US imports into India grew 15.95% while India’s exports to the US grew by only 0.92%.
Exports from India (USD Billion)
Imports into India (USD Billion)
A Brief Historical Context
China’s return to the top is not surprising when viewed in sequence. The relationship has shifted multiple times over the past decade.
| Period | India’s No. 1 Trading Partner | Key Context |
|---|---|---|
| 2013-14 to 2017-18 | China | Chinese manufacturing exports surged globally; India’s import reliance deepened |
| 2018-19 to 2019-20 | USA | India-US ties strengthened; Chinese imports briefly moderated |
| 2020-21 | China | COVID disruptions made Chinese goods essential during supply chain stress |
| 2021-22 to 2022-23 | USA | Post-Galwan political tension; US trade surged on strong Indian export demand |
| 2023-24 | China (marginal) | China edged US by just $0.1B ($118.4B vs $118.3B); effectively a tie on bilateral trade volumes |
| 2024-25 | USA | US reclaimed clear lead; India-US trade reset talks gained momentum |
| FY2025-26 | China | Chinese imports accelerated; US exports from India nearly stagnated; China reclaims top spot |
The key point to understand: China’s return to the top position does not reflect India choosing China over the US. It reflects structural import dependency on Chinese goods, combined with slower-than-expected growth in India’s exports to the US during FY26.
Part IIWhat India Imports from China and Why It Cannot Stop
India’s imports from China in FY26 reached $131.63 billion, a 16% rise over the previous year’s $113.45 billion. To understand why this number keeps growing despite political tensions, one must look at what India actually buys from China and why substitution is so difficult.
The Core Import Categories
| Category | India’s Dependence on China | Why Substitution Is Difficult |
|---|---|---|
| Electronics and components | China and Hong Kong supply roughly 55% of India’s integrated circuit imports; electrical and electronic equipment is India’s single largest import category from China | No domestic chip ecosystem; alternative suppliers cost significantly more |
| Active Pharmaceutical Ingredients (APIs) | India sources approximately two-thirds of its API requirements from China; some antibiotic categories have China supply shares above 90% | Chinese producers have scale and fermentation chemistry advantages built over 20+ years |
| Solar modules and cells | China dominates global solar manufacturing; India relies on Chinese panels for its renewable energy expansion | Domestic PLI-backed manufacturing exists but has not reached sufficient scale or cost parity |
| Machinery and capital goods | Chinese industrial machinery is often 30-40% cheaper than comparable European or Japanese alternatives | Indian manufacturers actively choose Chinese machinery on cost grounds for factory expansions |
| Chemicals and intermediates | China supplies a large share of dye intermediates, specialty chemicals, and industrial chemicals used by Indian textile, paint, and plastics industries | Decades of Chinese investment in chemical manufacturing clusters created unmatched economies of scale |
Putting It in Plain Terms
The API example: India is rightly called the pharmacy of the world. It manufactures roughly 20% of global generic medicines by volume. However, most of those medicines begin their journey not in India but in China. The active pharmaceutical ingredient, the core chemical molecule that makes the medicine work, comes predominantly from Chinese factories. Even if India wanted to shift tomorrow, building comparable fermentation-based API manufacturing capacity takes years of capital investment and regulatory clearance.
The solar example: India aims to install 500 GW of renewable energy capacity by 2030, with solar as the primary vehicle. Building solar parks requires panels. For most of this decade, the cheapest panels have come from China. Even with India’s import duties on Chinese solar cells and modules, Chinese supply remains competitive because of the sheer scale of China’s solar manufacturing ecosystem.
Why “De-Risking” Is Slower Than the Rhetoric Suggests
India’s Production Linked Incentive (PLI) schemes target exactly these dependencies. The PLI for bulk drugs and APIs carries a financial outlay of Rs 6,940 crore and runs through FY2029-30. Electronics PLI schemes have driven real results, with electronics exports growing sharply in recent years. Yet electronics imports from China have also grown because India’s assembly-led expansion still pulls in Chinese components, particularly chips and printed circuit boards. India is, in effect, running both tracks simultaneously: building domestic manufacturing while also importing more Chinese inputs to feed that manufacturing growth. The net result is a larger import bill even as the domestic industry expands.
Part IIIWhat India Exports to China and the Meaning of the 36.66% Surge
India’s exports to China rose 36.66% in FY26, reaching $19.47 billion. That growth rate sounds impressive. Yet the absolute value reveals a lopsided relationship. India exports to China less than one-seventh of what it imports from China.
What India Sells to China
India’s export basket to China reflects the country’s role as a supplier of raw materials and intermediate goods, not finished products. The major categories include iron ore, cotton yarn, organic chemicals, mineral fuels, engineering equipment, and some agricultural commodities. India essentially supplies upstream inputs. China processes them into finished goods and, in many cases, exports those finished goods back into global markets, including India.
The Structural Imbalance: India exports commodities and raw materials to China. China exports high-value manufactured goods to India. This upstream-downstream relationship means that as India’s domestic manufacturing and consumption grow, China’s exports to India grow proportionally. India’s exports to China, tied to commodity prices and raw material demand, do not grow at the same pace.
Why the 36.66% Export Growth Deserves Nuance
The sharp jump in India’s exports to China in FY26 partly reflects elevated commodity prices, particularly in minerals and ores, rather than a structural shift toward higher value-added exports. Furthermore, starting from a low base of $14.24 billion in FY25, a 36.66% gain brings exports to $19.47 billion. That is still below the $21.25 billion India exported to China in FY2021-22. So while the directional growth is genuinely welcome, the absolute level has not yet surpassed the peak seen four years ago.
Part IVThe Trade Deficit Reality: A $112 Billion Problem
India’s trade deficit with China in FY2025-26 stands at $112.16 billion. This is not merely a large number. It represents the single largest bilateral trade deficit India has ever run with any country in any year. Moreover, it has grown rapidly and consistently over the past decade.
India-China trade deficit (USD Billion)
| Year | Exports to China (USD B) | Imports from China (USD B) | Trade Deficit (USD B) | Notable Change |
|---|---|---|---|---|
| FY2018-19 | 16.75 | 70.32 | 53.57 | Reference baseline |
| FY2020-21 | 21.19 | 65.21 | 44.02 | Deficit dipped; COVID suppressed Chinese imports |
| FY2021-22 | 21.25 | 94.16 | 72.91 | Sharp rebound; imports surged post-COVID |
| FY2022-23 | 15.32 | 98.51 | 83.20 | Exports fell; imports crossed $98B for first time |
| FY2023-24 | 16.67 | 101.75 | 85.09 | Imports crossed $100B for first time |
| FY2024-25 | 14.24 | 113.45 | 99.20 | Near-record; exports fell to multi-year low |
| FY2025-26 | 19.47 | 131.63 | 112.16 | New all-time record |
The trajectory is consistent. The deficit has more than doubled from FY2019 to FY2026. Import growth has persistently outrun export growth. Even the welcome 36.66% export surge in FY26 was insufficient to narrow the gap, because imports grew 16% on a much larger base of $113.45 billion.
Why this deficit matters beyond trade statistics: A bilateral trade deficit of this scale means India is exporting jobs, manufacturing value addition, and economic demand to China. Every rupee spent on a Chinese electronic component is a rupee that does not flow to an Indian manufacturer. Additionally, a large and growing deficit keeps the rupee under structural downward pressure, as India must continuously source foreign exchange to pay for Chinese imports.
Part VThe US Angle: Trade Reset or Just Rhetoric?
Where India-US Trade Stands
India’s trade relationship with the US tells a very different story. India exported $87.3 billion to the US in FY26, making the US India’s single largest export destination by a wide margin. India’s top export categories to the US include engineering goods, pharmaceuticals, electronics, and gems and jewellery. These are higher-value categories compared to the commodity-heavy export basket India sends to China.
On the import side, India bought $52.9 billion from the US in FY26, an increase of 15.95% over FY25. The result is India’s trade surplus with the US, which contracted from $40.89 billion to $34.4 billion. The surplus contraction matters politically. The Trump administration has repeatedly described India as a “tariff king” and has pushed hard for market access concessions.
The Bilateral Trade Agreement Framework
In February 2025, Prime Minister Modi and President Trump launched formal Bilateral Trade Agreement (BTA) negotiations, targeting bilateral trade of Rs 45 lakh crore (approximately $470-500 billion at current exchange rates) by 2030, more than tripling current levels from the FY26 baseline. In February 2026, the two sides concluded a framework for an Interim Agreement. Under that framework, the US agreed to lower the reciprocal tariff on India from 50% to 18%. India committed to eliminating or reducing tariffs on all US industrial goods and a broad range of agricultural products.
As of early June 2026, Commerce Minister Piyush Goyal indicated that the first tranche of the deal could close by mid-July 2026. Both sides met in New Delhi from June 2-4 for detailed negotiations covering market access, digital trade, and non-tariff barriers.
| India-US BTA: Key Commitments So Far | Detail | Implication for Trade |
|---|---|---|
| US tariff on Indian goods | Reduced from 50% to 18%; further reductions contingent on deal progress | Positive for Indian exporters |
| India tariff on US industrial goods | To be eliminated or reduced across categories | Mixed; some Indian industries face increased competition |
| India tariff on US agriculture | Lower duties on almonds, pistachios, walnuts offered; dairy and wheat remain sensitive | Politically sensitive domestic issue |
| Digital trade | India to negotiate bilateral digital trade rules reducing discriminatory barriers | Significant for India’s tech and services sector |
| Non-tariff barriers | India to eliminate restrictive import licensing on US ICT goods; address medical device standards | Removes long-standing friction points |
| Supply chain cooperation | Both sides to cooperate on investment reviews and export controls | Strategic benefit in semiconductor and defence supply chains |
| Target trade volume | Rs 45 lakh crore (~$470-500 billion at current rates) in bilateral trade by 2030 | Ambitious; requires significantly faster growth than current pace |
The Strategic Contrast: China vs US Trade Relationship
India’s trade relationships with China and the US are structurally opposite. With China, India runs a large and growing deficit, primarily driven by manufactured goods imports that India cannot yet substitute domestically. The relationship is economically deep but politically fraught. With the US, India runs a surplus, primarily driven by services and high-value goods exports. The relationship is politically aligned and strategically advantageous, but economically underdeveloped relative to its potential. The BTA aims to deepen the US relationship. However, the China dependency will not disappear, because it is rooted in industrial capacity gaps that no trade agreement can close quickly.
Part VIWhat This Means for India’s Strategic Posture
De-Risking vs Decoupling: Two Very Different Goals
India’s official posture is “de-risking,” not “decoupling.” De-risking means diversifying supply sources and building domestic alternatives without fully severing existing supplier relationships. Decoupling would mean cutting trade ties with China. India is clearly pursuing the former. The $131.63 billion in FY26 imports from China makes any decoupling claim implausible.
De-risking, furthermore, is a slow process. India’s PLI schemes are generating genuine domestic capacity in targeted sectors. Electronics exports have grown sharply. API manufacturing investments are underway. Solar panel production is scaling. But these transitions take five to ten years, not one or two. In the interim, imports from China continue to grow because domestic alternatives are not yet cost-competitive or sufficiently scaled.
The Geopolitical Dimension
India must manage a precise paradox. Politically, the relationship with China carries unresolved border tensions and strategic competition. Economically, both sides continue to trade at record levels. This is not unique to India; most major economies face the same tension. However, for India, the asymmetry is particularly pronounced. China does not need India the way India needs China. India’s $19.47 billion in exports to China represents a small fraction of China’s total import base. India’s $131.63 billion in imports from China, by contrast, is critical to India’s own pharmaceutical, electronics, and solar industries.
The leverage question: In any trade dispute or geopolitical standoff, India’s ability to use trade as leverage against China is constrained. India cannot easily threaten to reduce imports when those imports are essential for its own industrial functioning. This asymmetry is precisely why the trade deficit matters beyond economics. It limits India’s strategic options in ways that go well beyond balance of payments.
What the Policy Priorities Look Like
| Policy Area | Current Status | Time Horizon for Meaningful Impact |
|---|---|---|
| API and bulk drug PLI | 41 products supported; incentives running through FY2029-30; Rs 6,940 crore outlay | 3 to 5 years for meaningful substitution in targeted categories |
| Electronics manufacturing PLI | Exports growing strongly; component import dependency from China persists | Full value chain indigenisation: 7 to 10 years |
| Solar panel manufacturing | Domestic capacity expanding; cost gap vs Chinese panels still exists | Cost parity achievable within 3 to 5 years with sustained policy support |
| FDI from China | Remains tightly controlled post-Galwan; debate ongoing over easing for manufacturing tie-ups | Policy decision pending; outcome will significantly affect speed of tech transfer |
| US-India BTA | First tranche targeted by mid-July 2026; negotiations active as of early June 2026 | Near-term wins possible; structural transformation over 5 to 10 years |
Key Takeaways at a Glance
- China is back at the top. Total bilateral trade of $151.1 billion in FY26 makes China India’s largest trading partner, ahead of the US at $140.2 billion. The US had held the top spot for four consecutive years before this shift.
- The deficit is the real story. India’s trade deficit with China hit a record $112.16 billion in FY26. This single-country deficit represents roughly one-third of India’s total merchandise trade deficit with the world ($333 billion in FY26).
- Imports grew 16%; exports grew 36.66%. Both grew, but from very unequal bases. Imports ($131.63 billion) still dwarf exports ($19.47 billion). The impressive export growth rate does not alter the fundamental imbalance.
- India runs a surplus with the US. Unlike with China, India exported $87.3 billion to the US against imports of $52.9 billion. The $34.4 billion surplus, however, declined from $40.89 billion the previous year, which raises political friction with Washington.
- The BTA framework is a genuine opportunity. India and the US are advancing toward a bilateral trade agreement targeting $500 billion in trade by 2030. The first tranche could close by mid-July 2026. Digital trade, non-tariff barriers, and agricultural access remain the key friction points.
- De-risking from China will take years. PLI schemes are working, but slowly. API, electronics, and solar dependencies are structural and rooted in decades of Chinese industrial investment. Substitution is possible, but not in the near term.
- India’s strategic options are constrained by the deficit. A $112 billion annual deficit with a geopolitical rival limits India’s economic leverage in diplomatic disputes. Reducing this dependency is therefore both an economic and a national security priority.
The Bigger Picture: Where India Stands
Let us call this what it is. China’s return to the top of India’s trading partner list is not a diplomatic victory for Beijing or a policy failure for New Delhi. It is a structural economic reality, one that years of de-risking rhetoric have not yet materially altered.
India’s dependence on Chinese electronics components, pharmaceutical inputs, solar panels, and industrial machinery runs deep. These are not luxury imports. They are the raw material inputs that feed India’s own manufacturing ambitions. The PLI programmes are the right response, and they are working in the right direction. But direction and speed are different things. The deficit hit a record $112 billion in FY26. It will likely remain very large for several more years, even under the best-case policy scenario.
The US-India trade relationship offers a genuine and meaningful counterbalance. The BTA, if concluded carefully, could expand India’s export base into a high-value, strategically aligned market. The $500 billion target by 2030 is ambitious, but ambition backed by active institutional negotiation is at least a plan with momentum. The China situation, by contrast, currently lacks a comparable near-term structural solution.
India’s policymakers face a precise and difficult task: accelerate domestic manufacturing capacity enough to reduce the China dependency, while simultaneously deepening the US trade relationship, without disrupting the industrial functioning that currently relies on Chinese imports. It is, to put it plainly, one of the more complex balancing acts in modern economic policy. And the FY26 data is a clear signal that the work is far from done.
Frequently Asked Questions
India’s imports from China rose 16% to $131.63 billion in FY2025-26, while India’s exports to China also grew strongly, bringing total bilateral trade to $151.1 billion. This surpassed India-US total trade of $140.2 billion, making China the top partner. The US had held the position for four years from FY2021-22. The shift occurred because Chinese imports into India grew faster than India’s exports to the US, which rose by only 0.92% in FY26. The structural dependency on Chinese electronic components, APIs, machinery, and solar panels drove the import surge, and that dependency has not meaningfully reduced despite domestic manufacturing initiatives.
India’s trade deficit with China in FY2025-26 is $112.16 billion, the highest ever recorded between India and any single trading partner. The deficit means India imports far more from China than it exports, resulting in a net outflow of foreign exchange. This puts structural downward pressure on the rupee, reduces domestic manufacturing employment, and creates supply chain vulnerabilities. India imports $131.63 billion from China, spanning electronics, APIs, solar, chemicals, and machinery, while exporting only $19.47 billion back, mostly commodities and raw materials. The deficit accounts for roughly one-third of India’s total merchandise trade deficit with the world in FY26.
India’s top exports to the US include engineering goods, pharmaceuticals, electronics, and gems and jewellery. These are higher-value manufactured and semi-processed goods. In FY26, India exported $87.3 billion to the US and imported $52.9 billion, resulting in a trade surplus of $34.4 billion in India’s favour. This is structurally opposite to the China relationship. With the US, India is a net exporter of goods; with China, India is a significant net importer. The US relationship is more favourable for India’s trade balance and is strategically aligned, but the absolute trade volume is currently smaller than India’s total trade with China.
India and the US launched BTA negotiations in February 2025, targeting $500 billion in bilateral trade by 2030. In February 2026, both sides concluded an Interim Agreement framework. Under this, the US agreed to lower the reciprocal tariff on Indian goods from 50% to 18%. India committed to reducing or eliminating tariffs on US industrial goods and some agricultural products. The first tranche of the deal is targeted for mid-July 2026. Key areas include digital trade, supply chain cooperation, non-tariff barrier removal, and preferential market access. If concluded effectively, the BTA could significantly boost Indian pharmaceutical, engineering, and technology exports to the US over the medium term.
Not quickly. India’s dependence on China for electronics components, APIs, solar panels, chemicals, and industrial machinery is structural. It reflects decades of Chinese industrial investment that created scale and cost advantages India cannot replicate overnight. Government PLI schemes are producing genuine results. Electronics exports have grown significantly. API manufacturing investments are underway. Solar panel production is scaling. However, these transitions take five to ten years to show material impact on import volumes. In the interim, the deficit with China is likely to remain very large. The honest assessment is that meaningful reduction in China import dependency requires sustained industrial policy executed consistently over many years.
This is a base effect and asymmetry problem. India’s exports to China were $14.24 billion in FY25. A 36.66% increase brings them to $19.47 billion, an absolute gain of roughly $5.2 billion. Meanwhile, China’s exports to India were already at $113.45 billion in FY25. A 16% increase on that large base adds roughly $18.2 billion, bringing imports to $131.63 billion. So despite the Indian export growth rate being higher in percentage terms, the absolute dollar increase in imports was more than three times larger, because it occurred on a much bigger base. The deficit consequently widened from $99.2 billion to $112.16 billion. Percentage growth rates on unequal bases can mislead. What matters for the actual deficit is the absolute change in each direction.
Disclaimer: This article is for informational and educational purposes only. Trade data is sourced from India’s Ministry of Commerce official figures for FY2025-26. Nothing in this article constitutes investment or trade advisory. Consult qualified professionals before making business decisions based on trade policy changes.
