China replaces U.S. to become India’s largest trading partner in FY24

China ranks number one when it comes to India's bilateral trade with countries, with two-way trade estimated at $118.4 billion in the financial year 2023-24 (FY24), according to the latest trade data by the economic think tank Global Trade Research Initiative (GTRI).

The U.S., which was the biggest trading partner in FY22 and FY23, slipped to the second spot, marginally lower than the India-China bilateral trade, at $118.3 billion in FY24, the data shows.

Of the entire bilateral trade, on a year-on-year basis, India's imports from China surged 3.24% to $101.7 billion. Exports increased 8.7% to $16.67 billion in 2023-24. The GTRI data shows in the past five years, India's exports to China shrunk marginally by 0.6% to $16.66 billion from $16.75 billion. Imports, on the other hand, zoomed 44.7% to $101.75 billion from $70.32 billion.

The trade with the U.S. exhibited expansion of surplus trade as exports grew 47.9% and imports surged 14.7% in the past five years. This translates into an expanded trade surplus of $36.74 billion, up from $16.86 billion in FY19.

The UAE, with trade worth $83.6 billion, was ranked the third largest trading partner of the country, followed by Russia at $65.7 billion, Saudi Arabia at $43.4 billion and Singapore at $35.6 billion.

The GTRI had earlier said India’s imports from China are in keeping with global trends as other countries have similar levels of imports. However, India must contain imports, said the think tank, adding that the real issue is not high imports but India’s low exports to China. Notably, China is usually the largest supplier to most countries. The neighbouring country's share in import baskets of most countries remains high.

Why are India’s exports to China low?

Two factors explain India’s low exports to China. Both countries specialise in similar sectors, and India’s core strength lies in labour-intensive products like textiles, clothing, leather, and engineering products. China need not buy as it is the world leader in these products. “But China stifles competitive imports from India through complex regulations. China’s annual imports exceed $2 trillion. Half of this is in products India exports globally. For example, India has emerged as a competent global supplier of polished diamonds, small cars, generic medicines, buffalo meat, etc. China imports these products in large quantities for domestic consumption but not from India,” the think tank said.

The country rejects Indian products by imposing trade barriers. “Quality cannot be a problem as India exports these products to over 100 countries, including the US and EU. China uses four significant barriers besides tariffs — regulatory, internal market, trade defence, and political to regulate imports.”

Notably, India had a trade surplus with China in 2004-5, as per data reported by China. During 2006-22, imports from China zoomed, and India’s trade surplus turned into a deficit of $101 billion in 2022.