A walk through any neighborhood toy store in India offers a small but revealing snapshot of the world’s most lopsided bilateral trading relationships – that between New Delhi and Beijing. Six years ago, New Delhi made a bold move to protect domestic manufacturing and block low-quality goods, jacking up import tariffs on foreign-manufactured toys from 20% all the way to 70%. At the time, retailers pushed back hard, arguing local producers could never match the price, variety and accessibility of imported Chinese products. But the combination of steep tariffs and stricter quality control standards has yielded unexpected success. By 2024, Indian toy imports had plummeted by a third, dropping from nearly $300 million in 2020 to just $100 million, while domestic toy exports surged from $129 million to $200 million over the same period. Most notably, India cut its reliance on Chinese toy imports dramatically, rolling back Beijing’s once-dominant 70% share of the local toy market.
This rare win in the toy sector stands out as an outlier, however. Across nearly every other part of the bilateral trade relationship, India’s attempts to rebalance a rapidly growing asymmetry with China have fallen flat. Even after 2020’s deadly Galwan Valley border clashes shattered diplomatic relations, prompting New Delhi to impose a wave of anti-dumping duties and ban high-profile Chinese apps including TikTok, India’s trade deficit with Beijing has exploded from $44 billion in 2020 to a staggering $112 billion in 2024. Exports to China have yet to rebound to pre-pandemic levels, even as total imports from China have doubled over that same period.
“India’s economic dependence on China continued to deepen while political, security, and investment ties were at their lowest point,” explained Kevin Zongzhe Li, a Washington-based Fellow at the Asia Society Policy Institute’s Centre for China Analysis, in an interview with the BBC. Ajay Srivastava, a leading analyst with the Delhi-based Global Trade and Research Initiative (GTRI), warned that the imbalance poses growing strategic risks. “China now supplies over 30% of India’s industrial imports, and India depends on it for more than 100 critical products. And the imbalance is worsening,” Srivastava said. If current import growth rates hold, Srivastava projects the bilateral deficit could jump to $134 billion by next year, giving Beijing substantially more economic and political leverage over India’s industrial sector.
Following years of frosty relations, ties between the two Asian giants have begun to thaw in recent months. On the sidelines of the September BRICS summit hosted in Delhi, Chinese President Xi Jinping and Indian Prime Minister Narendra Modi jointly committed to addressing the two nations’ persistent structural trade imbalances and strained supply chain links. But industry analysts and trade experts warn that correcting the imbalance will be an extraordinary challenge, given how deeply embedded Chinese imports have become in the foundation of India’s industrial economy.
Unlike the finished consumer goods that dominated Chinese imports a decade ago, today India relies most heavily on China for critical intermediate inputs that power its own domestic manufacturing. While New Delhi has successfully cut imports of finished goods such as smartphones and solar panels – India now assembles more than a quarter of the world’s iPhones domestically – most of this production remains dependent on Chinese-sourced components. This pattern holds across a wide range of core industrial sectors, from industrial machinery and battery raw materials to specialty chemicals, solar cells and manufacturing equipment. Data from the Observer Research Foundation (ORF), a leading Delhi-based think tank, shows that electrical machinery and electronics alone account for 36% of total Indian imports from China, followed by industrial machinery and mechanical appliances at 21.7%, with organic chemicals and plastics also claiming large market shares.
“Their interruption would not merely affect consumption; it would disrupt production itself,” noted Soumya Bhowmik, a Fellow at ORF’s Centre for New Economic Diplomacy. Bhowmik explained that this deep reliance on Chinese inputs highlights the fundamental difficulty India has faced in replacing foreign components with domestic manufacturing capacity.
Beyond the structural need for intermediate inputs, several broader macroeconomic trends are pushing more Chinese goods into India’s market. China is currently grappling with massive excess production capacity across sectors from steel and solar panels to electric vehicles, as its cooling domestic economy cannot absorb all of the output Chinese factories produce. As a result, Chinese manufacturers have increasingly turned to overseas markets, selling goods at discounted prices to clear inventory. Analysts project China’s annual total trade surplus will top $1 trillion for the second consecutive year in 2024. Much of this excess output is flowing to India, which is simultaneously expanding its own domestic manufacturing base across multiple sectors, while Western nations have imposed new tariffs and trade restrictions that redirect Chinese exports away from Atlantic markets, Srivastava explained.
On the other side of the imbalance, Indian exporters still face major barriers to accessing the large Chinese market. “Indian products face a variety of tariff and non-tariff hurdles in China that make it difficult to scale exports,” Li said. “If normalisation [of ties] continues without a serious push for reciprocal market access, India risks a situation where the political relationship improves but the economic dependency stays the same.”
Trade analysts say that a long-term solution to both reducing unnecessary imports and boosting export performance will require India to strengthen its domestic manufacturing fundamentals. Srivastava noted that this calls for targeted, sector-specific industrial policy and improvements to core infrastructure – including affordable energy, accessible business credit, efficient logistics networks and consistent regulatory frameworks – all areas where India still lags behind global competitors.
New Delhi has recently relaxed foreign direct investment rules that could open the door to expanded Chinese investment in India, but Srivastava argued that these new investments will require careful screening. “Investment that merely expands distribution networks or assembles products using Chinese parts could increase imports and deepen dependence. Approvals should therefore prioritise technology transfer, local value addition, domestic component production and exports from India,” he said.
In the short term, experts say India could narrow the gap by targeting expanded exports to China in high-potential niche sectors. Li pointed to pharmaceuticals as a natural fit, given China’s rapidly aging population and growing demand for affordable healthcare products. But Li also cautioned that niche export opportunities alone cannot close a $112 billion deficit. “The key question is whether Beijing is ready and willing to make concessions on market access as part of the broader normalisation. Alternatively, India will need to find its own leverage to force that conversation,” Li said.