China surpasses US as India’s largest trading partner in FY26; trade gap swells to USD 112.16 bn

China Reclaims the Top Spot in India’s Trade Hierarchy

In a significant shift in global trade dynamics for the 2025-26 fiscal year, China has officially overtaken the United States to once again become India’s largest trading partner. This transition concludes a four-year period where the U.S. held the top position, a streak that began in 2021-22. During the most recent fiscal year, the total bilateral trade volume between New Delhi and Beijing surged to a staggering $151.1 billion, reflecting a deep-seated and growing commercial interdependence despite ongoing diplomatic and border tensions between the two neighbors.

A Historic and Widening Trade Imbalance

While the total trade volume has reached new heights, the data reveals a stark and growing disparity in the exchange of goods. India’s trade deficit with China has hit a record-breaking $112.16 billion, a significant jump from the $99.2 billion deficit recorded the previous year.

• The Import Surge: India’s imports from China climbed to $131.63 billion, representing a 16% year-on-year increase. This growth was largely fueled by a heavy reliance on Chinese electronics, industrial machinery, and chemical components.
• The Export Struggle: Although India’s exports to China saw a robust percentage growth of over 36%, the absolute value remained relatively low at $19.47 billion. This highlights the difficulty Indian manufacturers face in penetrating the Chinese market compared to the massive influx of Chinese goods into India.

Shifting Dynamics with the United States

The relationship with the U.S. showed signs of cooling in terms of its relative share of India’s trade. While the U.S. remains India’s most critical export destination, the overall balance shifted:

• Stagnant Exports: Indian exports to the U.S. grew by a marginal 0.92%, totaling $87.3 billion.
• Rising Imports: Imports from the U.S. saw a much sharper increase of nearly 16%, reaching $52.9 billion.
• Narrowing Surplus: As a result of these factors, India’s trade surplus with the U.S. narrowed to $34.4 billion, down significantly from the $40.89 billion surplus enjoyed in the 2024-25 fiscal year.

Strategic Implications and National Milestone

On a broader scale, India reached a historic milestone in FY26, with its total global exports of goods and services hitting a record-breaking $860 billion. However, the return of China to the top spot presents a strategic challenge for the Indian government. Despite various “Make in India” initiatives and attempts to “de-risk” from Beijing, the data shows that Indian industries—particularly in the high-tech and electronic sectors—remain tethered to Chinese supply chains.

This reliance has become even more pronounced as global trade routes face pressure from regional conflicts, such as the ongoing war involving Iran, which has complicated traditional shipping lanes and forced a greater focus on regional Asian trade hubs. The crossing of the $100 billion mark for electronic imports alone underscores the uphill battle India faces in achieving true trade equilibrium.