Patanjali Civil Services Academy

India–China Trade: Widening Trade Deficit

Tags: Prelims Current events of national and international importance

Source: The Hindu

Context: India’s exports to China rose 40.7% in January–September 2026, but the bilateral trade deficit exceeded $100 billion.

Bilateral trade (Jan–Sep 2026): $144.45 billion (+25.4%).
India’s exports to China: $19.26 billion (+40.7%).
India’s imports from China: $125.19 billion (+23.3%).
Trade deficit: $105.93 billion; 2025 record was $116.12 billion.
Major Indian exports: Seafood, naphtha and printed circuit boards.
Major concern: Dependence on Chinese intermediates, electronics and machinery; limited market access for Indian firms.
Supply-chain risks: Chinese export controls affecting sectors such as fertilisers and rare earths.
Diplomatic context: Trade imbalance and supply-chain issues figured in talks between Narendra Modi and Xi Jinping on the sidelines of the BRICS summit.
Trade deficit: Occurs when the value of imports exceeds exports. It is distinct from the overall current account deficit (CAD), which also includes services, income and transfers.
Rare earth elements (REEs): A group of 17 elements—15 lanthanides, scandium and yttrium—important for permanent magnets, electronics and clean-energy technologies.

Q1. With reference to India’s trade deficit with China, consider the following statements:

An increase in India’s exports to China can coexist with a widening bilateral trade deficit.
A bilateral merchandise trade deficit necessarily implies that the country has an overall current account deficit.
Dependence on imported intermediate goods can limit the domestic value addition in goods subsequently exported by India.

Which of the statements given above is/are correct?

(a) 1 and 2 only

(b) 1 and 3 only

(d) 1, 2 and 3

Answer: (b)

Explanation:

Statement 1 is correct. The trade deficit depends on the absolute difference between imports and exports. If imports exceed exports by an increasing amount, the deficit may widen even when exports grow rapidly.
Statement 2 is incorrect. A bilateral trade deficit does not necessarily imply an overall current account deficit. The latter also includes trade in services, primary income and secondary income.
Statement 3 is correct. Imported components and intermediate goods contribute to production costs and may reduce the share of value generated domestically in exported products.