China Emerges as India’s Surprise Growth Market, but Trade Deficit Swells

India’s exports to China have picked up sharply this financial year, helped by stronger shipments of electronics and engineering goods. Yet the improvement has done little to alter a trade relationship that remains heavily tilted towards Chinese imports. 

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

Exports to China rose almost 40% in the five months through August, according to an analysis of government data cited in the report. Electronics have been one of the main contributors, alongside engineering products. 

The rise comes from a relatively small base. China accounted for 4.4% of India’s exports in the financial year ended March, up from just over 3% a year earlier. The US, by comparison, received almost one-fifth of India’s exports. 

Electronics exports to China gather pace 

Electronics have emerged as an important part of the increase in shipments to China. 

Exports in the category tripled to $3.18 billion in the financial year ended March. Products contributing to the increase included printed circuit board assemblies, smartphones, display modules and telecom equipment. 

The trend has continued into the current financial year. Electronics shipments to China increased more than 15% year-on-year during April-August. 

Industry executives cited in the report linked part of this increase to demand associated with the global expansion of artificial intelligence infrastructure and data centres. 

Engineering shipments rise 21% 

The improvement has not been confined to electronics. 

India’s engineering exports to China increased about 21% year-on-year during the April-August period. Machinery and parts, automobile components and hand tools were among the products contributing to the rise. 

The growth in these categories comes as India continues its effort to expand domestic manufacturing and increase its presence in global supply chains. 

The report also noted that the increase in exports coincides with efforts by India and China to improve bilateral relations, while changes in US tariff policy have provided another reason for the two countries to deepen economic engagement. 

Differences emerge in India and China trade data 

There is, however, a complication in interpreting the electronics numbers. 

Chinese customs data do not show a comparable increase in imports of printed circuit boards from India. Instead, much of the growth recorded by China appears under smartphones and other telecommunications products. 

Industry executives cited in the report pointed to differences in how the two countries classify goods, making it difficult to determine precisely which products account for the increase. 

Trade imbalance remains wide 

The stronger export numbers have not substantially changed the broader trade imbalance between India and China. 

India imported $131.6 billion worth of Chinese goods in the financial year ended March. These shipments accounted for almost 17% of the country’s total imports. 

That figure remained far above the value of Indian goods shipped to China during the same period. 

China also remains a relatively small destination for Indian exports despite its importance as a source of imports. Its share of India’s outbound shipments stood at 4.4% in the year ended March. 

The latest data therefore show two trends moving together: Indian exports to China are expanding, particularly in electronics and engineering goods, but the scale of imports from China means the bilateral trade gap remains substantial.