India-China trade deficit tops $100bn in FY2025-26

A new milestone in the India-China trade gap

India’s trade deficit with China has crossed the $100 billion mark for the first time, with one month still left in the fiscal year. Commerce department estimates put the bilateral trade deficit at $102.0 billion during April to February, up from $11.1 billion in the same period a year earlier. The widening gap stands out even as India’s exports to China have recorded strong growth. The data reinforces a long-running pattern: Indian exporters have made periodic gains, but imports from China have risen faster on a much larger base.

This comes against a broader backdrop of India’s trade numbers showing volatility, with a sharp monthly deficit driven by higher imports. Separately, global conditions have also mattered, with China’s overall trade surplus rising to a record $1.19 trillion in 2025 even amid heavy US tariffs.

February’s trade deficit: sharp rise, but off January peak

India’s overall trade deficit nearly doubled in February to $17.0 billion from $14.42 billion a year earlier. Imports surged 24%, even as exports slipped 0.81% to $16.61 billion. While the headline number looks weak, the deficit narrowed from January’s $14.68 billion. The month-to-month move suggests some easing, but the level remains elevated.

The import surge in February was not attributed to a single item. Instead, the rise reflected a combination of consumption demand, industrial requirements, and global price effects across key categories.

What drove imports in February

Gold imports jumped 218.5% to $1.4 billion, and silver imports surged 285% to $1.6 billion, with the silver increase linked to rising industrial use, particularly in electronics and renewable-linked sectors. Petroleum imports were reported at $12.97 billion. Electronics imports stood at $10.09 billion, while machinery imports were $1.32 billion.

Together, these numbers underline two forces shaping the import bill. Some demand is consumption-led, such as precious metals. Another part reflects production dependence, where electronics and machinery are needed to support domestic manufacturing activity.

China gap crosses $100 billion despite export growth

The most consequential shift in the latest dataset is the scale of the India-China trade gap. India’s exports to China grew nearly 38% to $17.5 billion during April to February. But imports rose over 15% on a much larger base to nearly $120.0 billion, keeping the deficit at $102.0 billion.

The asymmetry is clear in the structure of the relationship. India is exporting more, but it is importing far more of what it cannot yet produce competitively at scale. The data also points to continued dependence on China for inputs required to keep manufacturing lines running.

Products behind the trade flows

On the export side, telecom instruments or smartphones saw a significant increase, with exports to China rising almost six-fold to $1.3 billion during April to January, the latest period cited. Oil products rose 133% to $1.1 billion, and copper items increased to $1.5 billion, a move described as 675 in the data.

On the import side, electrical machinery and telecom instruments saw a sharp rise, with electronic components identified as the top imported item from China. The coverage also notes that India remains dependent on China for components, machinery, chemicals, and pharma ingredients. At the same time, China is described as maintaining tight checks, including inspection requirements and standards that restrict the entry of Indian goods.

A longer trend: imports rising faster than exports

A separate long-term view shows how the imbalance has built over time. India’s imports from China rose from $1.0 billion in 2001-02 to $15.0 billion in 2020-21. They then increased to $14.6 billion in 2021-22 and crossed $113.5 billion in 2024-25. In the current financial year, imports had already reached $14.3 billion in the first eight months.

Nearly 80% of these imports are concentrated in electronics, machinery, chemicals, and plastics. This concentration matters because it links the trade deficit to core industrial supply chains rather than discretionary consumption alone.

Key numbers at a glance

How the deficit links to India’s broader external accounts

On the import side, total imports were reported to have increased 7.4% to $100.5 billion, with merchandise imports at $113.5 billion and services imports at $187.0 billion. The rise in imports was expected to push India’s overall trade deficit to about $119.6 billion for the full fiscal year, compared with $11.1 billion a year earlier.

The data also pointed to a potential cushion from remittance flows. Overseas Indians sent home around $135.0 billion in FY2025, and this was cited as a factor that could offset the merchandise trade deficit and help maintain a modest current account surplus if sustained.

Market impact: what investors watch in trade data

Trade deficits matter for markets because they can influence expectations around currency movement and external funding needs. A note in the coverage flagged that a widening trade deficit with China may exert pressure on India’s overall external trade numbers and have a bearing on currency movement. The same coverage described the deficit as shifting from cyclical to structural, given the mix of imports.

The composition is also important for listed sectors. Higher electronics and machinery imports point to strong industrial demand but also highlight gaps in domestic capacity. Elevated gold imports can reflect financial behaviour, including demand for a hedge during uncertainty, while fertilizer imports rising to $15.9 billion, up 64.5%, underline dependence on imported agricultural inputs when global prices move.

Why the China deficit is proving hard to close

Multiple reports in the provided data frame the problem as structural. India’s manufacturing efforts are described as falling behind cheaper imports from China, particularly for intermediate goods and capital goods. A written reply in Parliament attributed the deficit mainly to imports such as auto components, electronic parts and assemblies, mobile phone parts, machinery and its parts, and active pharmaceutical ingredients used for making finished products, including those exported from India.

Separate estimates also suggest the imbalance may widen further. The trade gap was expected to widen to around $111.4 billion for the full fiscal year in one dataset. A Global Trade Research Initiative estimate projected the deficit could reach about $106.0 billion in 2025, with imports estimated at $123.5 billion on Indian data, while Chinese customs data suggested a wider deficit of over $115.0 billion.

Conclusion

The latest trade data shows India’s overall deficit has been volatile month to month, but the more persistent issue is the bilateral gap with China crossing $100 billion in April to February. Exports to China have grown, yet imports continue to outpace them decisively, led by electronics, machinery, and other industrial inputs. With full-year estimates pointing to a further widening in the bilateral deficit and a higher overall trade deficit, the next set of official releases will be closely tracked for whether import momentum cools or remains firm.