By R. Suryamurthy
India’s emerging rapprochement with China presents a familiar but consequential paradox: New Delhi wants to restore economic engagement with a neighbour it continues to distrust strategically, even as it negotiates with a United States increasingly willing to use market access, tariffs and sanctions as instruments of foreign policy. Commerce and Industry Minister Piyush Goyal’s declaration that India is “working to develop the relationship with China once again” captures the pragmatism of this moment, but External Affairs Minister S. Jaishankar’s warning about a “completely tilted” trade balance exposes the contradiction at its heart. India is reopening doors to Beijing without yet demonstrating that the economic relationship behind them can be made more equitable.
The distinction matters because the challenge is not whether India should trade with China, whose manufacturing ecosystem supplies critical components to industries across the world, but whether New Delhi can convert commercial interdependence into an advantage rather than perpetuate a dependence that constrains its strategic choices.
The numbers offer little grounds for complacency. India’s merchandise trade deficit with China reached $112.6 billion in fiscal year 2025-26, according to the figures cited by the Commerce Ministry, as imports climbed to $131.63 billion against exports of $19.47 billion. More recent Chinese customs data show that the imbalance has continued to widen: between January and September 2026, China exported $125.19 billion worth of goods to India, while Indian exports amounted to just $19.26 billion, producing a deficit of $105.93 billion in nine months.
That Indian exports to China rose sharply is encouraging, but the composition of trade is more revealing than its headline growth. China supplies electronics, machinery, chemicals and other value-added industrial inputs that underpin India’s manufacturing ambitions, while Indian exports remain disproportionately concentrated in commodities and resource-based products. Such an exchange may be commercially rational in the short term, but it becomes strategically problematic when an aspiring manufacturing power relies on another country for the components, equipment and technologies necessary to expand its own industrial capacity.
The deficit, by itself, is not proof of unfair trade; imports of productive equipment can support investment, exports and employment. The more fundamental concern is that India has struggled to develop a sufficiently broad domestic supplier base while securing meaningful access to the Chinese market for its own competitive industries. Jaishankar’s complaint that sectors successful elsewhere have failed to establish comparable business operations in China points to an asymmetry that cannot be resolved simply by increasing bilateral trade.
The diplomatic reopening is real, but its limits are equally important. Relations deteriorated after the 2020 Galwan Valley clashes and the subsequent military standoff along the Line of Actual Control (LAC). The October 2024 disengagement understanding, followed by renewed high-level engagement and the September 2026 meeting between Prime Minister Narendra Modi and President Xi Jinping in New Delhi, has created space for stabilisation. Yet stabilisation is not reconciliation, and a reduction in immediate tensions does not establish that the underlying strategic rivalry has disappeared.
India’s own stated position recognizes this distinction. Modi has reiterated that peace and tranquillity along the frontier are essential to the development of bilateral relations, while Jaishankar has linked the movement toward normalcy to the condition of the border. This is a sensible hierarchy: commercial interests can justify engagement despite political differences, but they cannot substitute for confidence that military tensions will not again disrupt the relationship.
The temptation to accelerate economic normalisation is nevertheless understandable. India needs Chinese inputs to build infrastructure, expand electricity generation and strengthen industrial production. Recent relaxations allowing selected Chinese equipment suppliers to participate in critical power projects, alongside adjustments to investment procedures for certain sectors, reflect the practical limits of a policy that seeks to reduce dependence without interrupting domestic economic activity.
But selective exceptions must remain instruments of industrial policy rather than become a substitute for one. If Chinese equipment is indispensable because domestic manufacturing capacity is inadequate, the immediate need may justify imports; the longer-term response must be to establish credible alternatives through technology partnerships, competitive procurement, domestic research and development, and investment in local production. Otherwise, temporary flexibility risks hardening into structural dependence.
The same test applies to Chinese investment. National-security scrutiny is justified, particularly in sensitive technologies and infrastructure, but restrictions that are too broad, opaque or unpredictable can also impede capital formation and discourage legitimate manufacturing. India needs a framework that distinguishes between strategic vulnerabilities and commercially useful investment, with transparent screening standards, enforceable safeguards and clear timelines. Neither indiscriminate exclusion nor unqualified openness is an adequate economic strategy.
The timing of Goyal’s remarks also reflects the uncertainty surrounding India’s economic relationship with the United States. Negotiations on a bilateral trade agreement are advanced, but differences over market access and other unresolved issues have prevented a final settlement. Jaishankar has correctly identified the larger transformation behind these negotiations: Washington is using tariffs to advance a broader effort to reindustrialise the American economy and reset the conditions under which foreign producers gain access to its market.
For India, the implications extend beyond the eventual tariff schedule. If access to the US market increasingly depends on concessions negotiated under political and economic pressure, export-led growth becomes more vulnerable to decisions taken in Washington. The threat of punitive tariffs against major buyers of Russian oil, under legislation signed by President Donald Trump, reinforces the point that commercial relationships can become instruments of geopolitical coercion.
Goyal is therefore right to argue that India’s partnership with the United States extends beyond trade to defence, technology, critical minerals and people-to-people ties. But his confidence that the relationship will remain strong irrespective of changes in political thinking should not obscure the distinction between strategic convergence and guaranteed economic accommodation. A partnership can be consequential without being immune to conflicting interests.
Nor should uncertainty in Washington be interpreted as an argument for strategic accommodation with Beijing. Replacing one concentration of economic dependence with another would not constitute autonomy; it would merely change the source of vulnerability. India’s objective must be to widen its options, not to use one major power as leverage against another while remaining exposed to both.
This is where the language of self-reliance requires greater intellectual honesty. The experience of the Covid-19 pandemic, when disrupted supply chains exposed India’s dependence on external suppliers, helped drive the Atmanirbhar Bharat initiative. Yet self-reliance cannot mean producing everything domestically, just as openness cannot mean accepting every import as economically beneficial. The relevant question is whether India possesses sufficient productive capacity, technological capability and diversified external relationships to withstand a disruption without paying an intolerable economic or strategic price.
That requires a more sophisticated approach than measuring success through investment announcements, export growth or the number of trade agreements signed. It requires identifying critical dependencies, assessing the availability of alternative suppliers, measuring domestic value addition and determining whether Indian firms can compete in markets where they have historically faced barriers.
India’s opportunity lies in using the present geopolitical fragmentation to negotiate better terms with every major economic partner. Supply-chain diversification gives New Delhi leverage, but only if it can offer investors reliable infrastructure, predictable regulation, skilled workers and a competitive manufacturing environment. Singapore’s discussions with India on semiconductor development and workforce training illustrate the kind of cooperation that can help build capabilities rather than merely redirect existing trade flows.
Engagement with China could also contribute to industrial development, provided partnerships include meaningful technology transfer where feasible, local supplier development, transparent commercial terms and safeguards against excessive concentration. Market access for Indian pharmaceuticals, information technology services, agricultural products and other competitive sectors must be pursued with the same determination that India brings to securing industrial inputs. Reciprocity should be measured through actual commercial opportunities, not diplomatic assurances.
Equally, India must resist the assumption that every trade deficit is a strategic defeat or that every domestic production target automatically advances national security. Efficient imports can improve productivity; protected domestic industries can become expensive and uncompetitive. The objective is not autarky but resilience, built on a combination of competitive domestic production, diversified sourcing and reciprocal international engagement.
Goyal’s observation that “the last word has not yet been scripted” on India-China relations is therefore more than a diplomatic qualification. It is an acknowledgment that the outcome remains contingent on choices made by both governments. Beijing must demonstrate that stabilisation at the frontier can coexist with genuine economic reciprocity, while New Delhi must show that its willingness to engage is backed by a coherent industrial strategy rather than a succession of tactical adjustments.
As US Secretary of State Marco Rubio visits India, New Delhi’s parallel engagement with Washington and Beijing will inevitably be interpreted through the lens of great-power competition. India should neither permit Washington to dictate the limits of its economic diplomacy nor allow commercial dependence on China to narrow its strategic freedom.
The real measure of strategic autonomy is not the ability to maintain cordial relations with competing powers. It is the ability to say no to any of them without placing the domestic economy at unacceptable risk. Until India can turn its expanding market, manufacturing ambitions and diplomatic leverage into greater productive capability and genuine bargaining power, its much-vaunted multi-alignment will remain more an exercise in managing dependencies than an expression of economic sovereignty. (IPA Service)
