India’s dependence on imports from China increases:Toy sector is majorly affected; Read how this came to be

India’s toy sector offers a rare example of how the country has reduced its dependence on China. Six years ago, India raised tariffs on imported toys from 20% to 60% and eventually to 70% to promote local manufacturing and keep substandard toys out. Retailers opposed the move, arguing that Indian firms could not compete with foreign products. However, higher customs duties and stricter quality standards worked. Toy imports fell by one-third, from nearly $300 million in 2020 to $100 million this year, while exports rose from $129 million to $200 million, BBC reported. China’s share of India’s toy market, once around 70%, also fell sharply. Trade deficit with China keeps growing The toy sector remains an exception to India’s broader trade relationship with China. Despite the deterioration in ties after the 2020 Galwan Valley clashes, anti-dumping duties and a ban on Chinese apps such as TikTok, India’s trade deficit with China has risen from $44 billion in 2020 to $112 billion this year. “India’s economic dependence on China continued to deepen while political, security, and investment ties were at their lowest point,” said Kevin Zongzhe Li of the Asia Society Policy Institute’s Centre for China Analysis. India’s exports to China remain below pre-pandemic levels, while imports have doubled. China remains critical to Indian manufacturing China now supplies more than 30% of India’s industrial imports, and India depends on it for more than 100 critical products, according to Ajay Srivastava of the Global Trade and Research Initiative (GTRI). India has reduced imports of some finished goods such as smartphones and solar equipment and now produces more than a quarter of the world’s iPhones. But much of this production remains assembly-based and relies on Chinese components. The same dependence exists in industrial machinery, battery inputs, chemicals, solar cells and manufacturing equipment. According to the Observer Research Foundation (ORF), electrical machinery and electronics account for 36% of imports, followed by machinery and mechanical appliances at 21.7%. Organic chemicals and plastics also make up a significant share. “If normalisation continues without a serious push for reciprocal market access, India risks a situation where the political relationship improves but the economic dependency stays the same,” Li said. Chinese exports are rising globally China’s huge excess capacity in steel, solar panels and electric vehicles, combined with slowing domestic demand, is pushing manufacturers towards overseas markets. China’s trade surplus is expected to exceed $1 trillion for the second consecutive year. India is an important market as it rapidly expands manufacturing, while Chinese companies are also facing tariffs and other restrictions in Western markets. At the same time, Indian exporters face tariff and non-tariff barriers in China, making it difficult to expand sales there, Li said. Supply disruption could hit production India’s reliance on Chinese components means any major disruption could affect manufacturing itself. “Their interruption would not merely affect consumption; it would disrupt production itself,” said Soumya Bhowmik of ORF’s Centre for New Economic Diplomacy. Srivastava said India could face a $134 billion bilateral deficit if imports continue growing at the current pace, giving Beijing greater leverage over Indian industry. Modi-Xi agree to address trade imbalance At the BRICS summit in Delhi in September, Prime Minister Narendra Modi and Chinese President Xi Jinping agreed to address “structural trade imbalances and supply chain issues” amid improving bilateral ties. But experts say reducing dependence will be difficult because Chinese inputs are deeply embedded in India’s industrial economy. Manufacturing needs to be strengthened Srivastava said India needs stronger domestic manufacturing to reduce avoidable imports and improve exports. This requires sector-specific industrial policies, affordable power and credit, efficient logistics and stable regulations. India has also eased some foreign direct investment rules, potentially allowing greater investment by Chinese companies. But Srivastava said such investments should prioritise technology transfer, local value addition, domestic component production and exports, rather than simply expanding distribution or assembly using Chinese parts. Pharmaceuticals could boost exports In the short term, Li suggested targeting specific sectors for greater exports to China. Pharmaceuticals could be a natural fit because of China’s ageing population and rising healthcare costs. But he said niche sectors alone cannot close the $112 billion deficit. The key question is whether Beijing will offer greater market access as ties improve. If not, India will need to develop its own leverage to push for a more balanced trading relationship.