India-China thaw faces economic tests as trade deficit hits $91 billion

October 5, 2026 at 04:00 AM2 min

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India's diplomatic thaw with China is colliding with a deepening trade imbalance, with New Delhi importing $91 billion more from Beijing in the first eight months of 2026. Prime Minister Narendra Modi and President Xi Jinping pledged to rebuild ties last month, but India's reliance on Chinese intermediate goods and rare earths persists.

Key Facts

India's trade deficit with China reached $91 billion by August 2026, on track to surpass the record $116 billion deficit of 2025.
China's share of global value-added manufacturing stood at 28% in 2025, compared with India's 3%, according to the World Bank.
China's share of global merchandise exports was 16.3% in 2025, while India's was 1.7%.
India's research and development spending was 0.64% of GDP in 2024, according to the Economic Survey.
Beijing imposed export licensing requirements on seven heavy rare earths in April 2025, exposing vulnerabilities in India's automotive and defense sectors.

Trade Imbalance

India imported goods worth $116 billion more from China than it exported in 2025. By August 2026, the deficit had already hit $91 billion and was on track to surpass last year's record. Electrical and electronic equipment, machinery, and chemicals are the three largest import categories, largely intermediate goods used by domestic manufacturers. The more India exports, the more it needs to import from China.

Supply Chain Dependence

Smartphones and generic medicines illustrate the dilemma: India has made progress in assembling electronics and expanding pharmaceutical production, but many components and inputs still come from China. Beijing's imposition of export licensing requirements on seven heavy rare earths in April 2025 exposed vulnerabilities in India's automotive and defense manufacturing sectors. Foxconn's withdrawal of Chinese staff from its Indian iPhone factories in 2025 illustrated how dependent advanced manufacturing can be on foreign technical expertise. India's research and development spending stood at just 0.64% of GDP in 2024, sharply lower than that of Asian peers, partly because of private-sector underinvestment.