Economy & Markets

Bilateral trade between India and China reached $167.6 billion in 2025, driven by a 71% surge in Indian imports to $149.5 billion from $87.5 billion in 2021, while exports remained stagnant at $18.1 billion. The resulting trade deficit expanded to $131.4 billion, reflecting a structural dependency where nearly 70% of Chinese imports are intermediate goods and 22% are capital goods rather than finished consumer products. This dynamic highlights an "assembly trap" wherein domestic manufacturing expansion relies heavily on imported components, particularly in electronics and telecommunications. The concentration of imports has intensified, with the top five categories—telecom parts, laptops, integrated circuits, solar cells, and lithium-ion batteries—accounting for $34.6 billion in 2025, up from $19 billion in 2021. Despite initiatives like Atmanirbhar Bharat and Production Linked Incentive schemes that boosted mobile phone assembly, domestic firms have not developed capabilities in semiconductors or precision components. Consequently, the share of imported mobile phone parts rose from 3.3% in 2022 to 10.1% in 2025, indicating downstream assembly growth without upstream backward integration. Analysts argue that current incentive structures reward final output volumes over domestic value addition, perpetuating reliance on Chinese supply chains. To address this vulnerability, recommendations include shifting incentives toward technological capability and supplier networks, implementing calibrated tariffs on specific components, and fostering a domestic component ecosystem. Without such shifts, industrial upgrading remains constrained by strategic vulnerabilities in critical sectors like green energy and pharmaceuticals