India-China Trade Dynamics: Dependency, Deficit, and Decoupling Trends

Abstract

This research paper examines the evolving trade relationship between India and China, with particular focus on India's trade deficit, sectoral dependencies, and recent decoupling efforts. Using trade data from 2000-2024, this study analyzes the structural imbalances in bilateral trade, critical dependencies in key sectors, and evaluates the efficacy of India's policy responses including the "Atmanirbhar Bharat" (Self-Reliant India) initiative and targeted import restrictions. The findings reveal that while India has made progress in reducing dependencies in some sectors, significant challenges remain in achieving balanced trade relations with China. This paper contributes to the understanding of complex economic interdependencies between emerging powers and offers policy recommendations for sustainable trade rebalancing. Our findings reveal that while bilateral trade grew 47-fold to $136.2 billion by 2023, India's trade deficit reached a record $101.28 billion, exposing critical vulnerabilities in electronics, pharmaceuticals, and renewable energy supply chains. The study evaluates India's decoupling strategies, including the Production Linked Incentive scheme and trade diversification efforts, while assessing their effectiveness and limitations. We conclude with policy recommendations for achieving strategic autonomy while maintaining essential economic engagement.