Balancing India-China economic ties
India’s approach to its economic relationship with China is evolving into a strategy of ‘managed interdependence,’ balancing economic benefits with national security concerns. Despite strained political ties following the Galwan Valley clash in June 2020, India continues to rely on Chinese supply chains, particularly in key sectors like electronics and pharmaceuticals.
A recent Observer Research Foundation analysis highlights that while bilateral trade reached approximately US$127.7 billion in FY2024–25, India’s trade deficit with China stood at nearly US$99.2 billion. This deficit reflects a dependence on Chinese intermediates and capital goods, creating vulnerabilities that India seeks to mitigate.
To address these vulnerabilities, India is implementing a multi-pronged strategy. The Production Linked Incentive (PLI) scheme aims to boost domestic manufacturing and reduce reliance on Chinese imports. Additionally, India is employing trade remedies such as anti-dumping duties to protect domestic industries. Investment screening and trusted-source principles are being applied to sensitive sectors to safeguard national security.
These policies have seen mixed results. Restrictions in the consumer internet space and enhanced scrutiny of investments have been effective. However, dependence on Chinese manufacturing inputs persists, especially in sectors critical to India’s growth, such as clean energy and advanced manufacturing. The challenge lies in balancing the short-term costs of de-risking with the long-term benefits of reduced strategic vulnerability.
India’s strategy also involves diversifying its supply chains through external partnerships and alternative sourcing arrangements. The goal is not complete self-sufficiency but rather enhanced resilience and the ability to withstand disruptions. While recent signs of improved relations with China are viewed as tactical, a full normalization depends on lasting border stability. India’s overall approach is one of geoeconomic risk management, seeking diversified economic engagement while safeguarding its strategic autonomy.
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