India’s trade deficit with China keeps setting records, and it explains why the diplomatic thaw has economic limits. Here is the picture in simple terms.

A trade deficit means a country buys more than it sells. In FY2025-26, India imported $131.6 billion of Chinese goods but exported only $19.5 billion. The gap: a record $112.16 billion.

The gap is not mainly consumer goods. About 98.5 percent of imports from China are industrial products, commerce ministry data shows. Electrical machinery ($43.2 billion), machinery and appliances ($28.2 billion), and organic chemicals ($10.2 billion) top the list.

These are inputs Indian factories need: electronics parts, EV battery components, solar modules, and drug ingredients. India sources about 43 percent of its electronics imports from China.

The imbalance has grown for a decade, from $44 billion in FY2021. China makes 28 percent of the world’s manufactured goods; India makes 3 percent. Handshakes and direct flights help ties, but this factory-floor dependence changes slowly.