Is India becoming a dumping ground for Chinese goods? Soaring trade deficit raises red flags

Representational Image

The widening of India’s trade deficit with China to a record $99.2 billion in the fiscal year 2024-25 is driven by a surge in import of electronic goods and consumer durables.

The data comes as US President Donald Trump announced a 90-day pause last week on most tariff hikes for major trading partners including India, while sharply increasing levies on Chinese goods, stoking fears that Chinese firms may divert goods to other markets.

In March alone, goods imports from China jumped over 25% year-on-year to $9.7 billion, led by electronics, electric batteries and solar cells. Total imports from China rose to $113.5 billion in 12-months through March, according to detailed trade data released by commerce ministry on Wednesday.

Meanwhile, India's exports to China fell 14.5% to $1.5 billion in March from a year earlier, with total exports dropping to $14.3 billion in the 12-months period, data showed.

Possible implications on India

"This is a wake-up call for India, as the rising imports reflect deeper structural dependencies of the Indian economy," Ajay Srivastava, founder of Global Trade Initiative, a Delhi-based trade policy think tank, told Reuters.

1.     The most immediate concern is that Chinese manufacturers, facing reduced access to the US market due to high tariffs, may increasingly divert their products to other markets, including India. This could lead to a surge in cheaper Chinese imports, potentially "dumping" goods at prices below their production cost to gain market share. The 25% year-on-year jump in imports from China in March 2025, particularly in electronics, electric batteries, and solar cells, as highlighted in the news reports, could be an early indicator of this trend.

2.     A flood of cheap Chinese imports could severely undermine India's own domestic manufacturing sector. Indian companies may struggle to compete with artificially low prices, potentially leading to production cuts, job losses, and hindering the growth of India's "Make in India" initiative. Sectors like steel, chemicals, and certain segments of electronics and consumer goods could be particularly vulnerable.

3.     The widening trade deficit signifies a deepening structural dependence of the Indian economy on Chinese goods, as pointed out by trade analysts. This reliance makes India vulnerable to supply chain disruptions and potential political leverage from China. While India aims to become a manufacturing hub, increasing dependence on Chinese imports, especially for crucial components, could hinder this ambition.

4.     There are concerns that Chinese companies might use India as a transit point or engage in other means to indirectly route goods to the US, potentially circumventing the tariffs. While this might offer some short-term gains for Indian ports and logistics, it could strain India's relationship with the US and potentially lead to scrutiny or even punitive measures from Washington if India is seen as facilitating tariff evasion. The Indian government's reported plans to set up a monitoring unit to track a surge in cheaper imports and warn firms against helping bypass US tariffs indicates its awareness of this risk.