China surpasses US as India’s largest trading partner in FY26

Context:

Recently, China has overtaken the United States to become India’s largest trading partner in FY 2025-26, with bilateral trade reaching USD 151.1 billion. This marks a reversal after four consecutive years (FY22-FY25) during which the US held the top position.

Key Highlights of India–China Trade:

• • • In FY 2025–26, India–China bilateral trade reached USD 151.1 billion, marking a significant expansion in economic engagement between the two countries. During the same period, India’s exports to China stood at USD 19.47 billion, registering a robust growth of 36.66% year-on-year, while imports from China rose to USD 131.63 billion, increasing by 16%.
    •  As a result, India’s trade deficit with China widened sharply to around USD 112.6 billion, the highest ever recorded. This reflects a key structural imbalance in the trade relationship, where despite notable export growth, India continues to depend heavily on Chinese imports, leading to a persistently large and widening trade gap.

India–US Trade Performance:

Although the United States is no longer India’s largest trading partner, it continues to remain a key export destination. India’s exports to the US stood at USD 87.3 billion, registering a marginal growth of 0.92%, while imports from the US increased significantly by 15.95% to USD 52.9 billion. As a result, India’s trade surplus with the US declined to USD 34.4 billion from USD 40.89 billion in the previous year.

India’s Overall Trade Scenario:

India’s external sector shows a widening deficit. Total exports reached USD 860.09 billion (+4.22%), while imports rose faster to USD 979.40 billion (+6.47%), resulting in a trade deficit of USD 119.3 billion. Merchandise exports were USD 441.78 billion, while imports stood at USD 774.98 billion, creating a large deficit. However, services exports of USD 418.31 billion generated a strong surplus of USD 213.89 billion, partially offsetting the gap.

Why China Regained Top Position:

China’s rise as India’s largest trading partner is driven by dependence on imports of electronics, machinery, chemicals, and intermediates, alongside import-intensive manufacturing growth. In contrast, India–US trade growth remains moderate. The widening USD 112 billion China deficit highlights external vulnerability, supply chain dependence, and the need for diversification. Policy focus must include boosting domestic manufacturing (PLI), export diversification, and reducing import reliance through a China+1 strategy.

Conclusion:

China’s re-emergence as India’s largest trading partner in FY26 reflects deepening global supply chain integration rather than a sudden geopolitical shift. However, the widening trade deficit underscores India’s continued reliance on imported intermediate goods. Long-term trade sustainability will depend on stronger domestic manufacturing, export diversification, and reduced strategic import dependence.