The Economic relationship between India and China is now in a state where diplomacy and business are going against each other. As tensions between New Delhi and Beijing continue in the country's border areas for several years, the new trade data shows a growing trade imbalance, which poses fundamental issues regarding market access, industrial dependence and economic sovereignty.

The criticism by Finance Minister Nirmala Sitharaman on October 16 against trade restrictions by China was just not a mere grievance regarding bilateral trade. It revealed a structural issue that has been going on despite years of diplomatic dialogue China has access to India's growing consumer and industrial markets while competitive Indian exporters are at a disadvantage in obtaining similar opportunities in China.

The value of bilateral trade in January – September 2026 was estimated at $144.45 billion, which is 25.4% higher than in the same period of 2025. The Chinese exports to India rose 23.3 per cent to $125.19 billion while the Indian exports to China rose 40.7 per cent to $19.26 billion. This resulted in a trade deficit of $105.93 billion, which increased 20.7% from the previous year.

It is a stark contrast. However, China exported about $6.50 worth of goods to India for every $1 worth of goods it imported from Indian exporters. The imbalance is no simple statistical freak. It's a big push in China's direction of commercial demand, consolidating Beijing's role in India's industrial supply chains.

Alongside this, Sitharaman highlighted the “many and wide-ranging non-tariff barriers” China employs as a major challenge in the discussion with Atlantic Council in Bangkok on the sidelines of the International Monetary Fund (IMF) meetings. The Indian pharmaceutical industries, agricultural exporters and food industries face regulatory hurdles to compete in the Chinese market.

The phytosanitary requirements and product approvals and other regulation processes in China have come into sharp focus. These regulations can be validly consumer and public health and agricultural ecosystem protecting. In absence of transparency, when approval processes are too lengthy or inconsistent, however, they can serve as trade barriers without any political visibility without tariffs.

The case of the Indian pharmaceutical industry is typical. Indian companies have built up significant experience in manufacturing inexpensive generic drugs and servicing a number of foreign markets. However, significant access to the vast Chinese healthcare market still does not exist. There could be significant commercial potential for greater cooperation in regulation and more predictable drug approvals, but this would be determined by the pricing, procurement and competition.

Another imbalanced factor is the composition of bilateral trade. The exports to India are focused on higher value products such as electronics, machinery, electrical equipment and industrial components from China. The Indian exports have always contained a higher percentage of commodities and intermediate materials.

This distinction is important because manufacturing exports create jobs, technologies and supplier networks and industrial investment. If a country is exporting raw materials and importing more and more sophisticated manufactured goods, then it is in danger of being dependent on foreign production ecosystems.

The issue is especially acute in the electronics, energy from renewable sources, telecom and emerging artificial intelligence sectors in India. Final products can be made locally, but still rely heavily on Chinese suppliers for imported parts, machinery or industrial materials.

This is what the Production Linked Incentive schemes, India's semiconductor agenda and investments in infrastructure are all about. However, domestic assembly is not enough to ensure strategic independence. If India can capitalise on the localisation of components, capital equipment, advanced materials and research capabilities, it will be able to attract more industrial value.

There is also a geographical aspect. India had tightened up the regulations for Chinese investment and technology related commercial activities after the border clash in 2020. Some friction has been eased in the past in the course of diplomatic interaction, but not all.

Economic interdependence can make conflict less likely, but relying on one supplier too much can make things more vulnerable. If the matter reached India's diplomatic level in the future, any kind of disruptions in the supply of critical industrial inputs would impact Indian manufacturers even in the absence of formal trade sanctions.

Beijing would say that its ability to compete is the result of decades of investment in infrastructure, scale of manufacturing, logistics efficiency, and industrial policy, and not a result of discriminatory market access. That's a valid argument. India can't blame all of its bilateral trade imbalance on China's restrictions on its business without taking into account its own manufacturing costs, logistics and technology issues.

However, the issues of competitiveness and reciprocal access to markets are distinct. China's manufacturing prow is not a good reason for opaque regulation of Indian products.

The implications are not limited to China. Sitharaman also raised an issue over the trade balance of India-ASEAN, saying that New Delhi has now realised it was necessary to rework agreements in which the growth of imports has been greater than that of exports.

It's important because Asian supply chains are intricately linked. China-made components can be channeled via production networks in Southeast Asia to reach Indian markets. Therefore, diversification of trade should be based on real value addition and clear rules of origin and not just a switch in the country of transit.

It's a positive and a worrisome sign for India's broader trade performance. In September 2026, the value of merchandise exports was $44.40 billion, and imports were $74.61 billion, resulting in a monthly trade deficit of $30.21 billion. The combined value of goods and services exports during April–September was about $476.20 billion, an increase of 13.84% year-on-year.

These are some of the evidence of India's increasing international commercial footprint, but also highlight the need to reduce structural import dependency.

India's import bill for crude oil, fertilisers and industrial raw materials is a major hindrance to the challenge. High energy prices lead to greater demand for foreign currency, pressure on the rupee and rise in production costs throughout the economy. This continuing manufacturing trade deficit has implications much beyond the statistics of customs operations.

New Delhi needs to take a measured action. Any blanket restriction on import of Chinese goods may lead to rise in prices for Indian manufacturers and make export of goods less competitive. However, unrestricted dependence would be detrimental to the country's extended industrial plans.

An effective combination of reciprocal market-access negotiations, accelerated domestic manufacturing growth, diversified sourcing and focused investment in strategic technologies is a superior strategy.

India must demand tangible improvement on approvals for pharmaceuticals, market access for agriculture, transparency in the regulatory process. It should also boost domestic component manufacturing, foster partnerships with technology with trusted economies and ensure that trade deals provide Indian businesses enterprise-friendly benefits.