India is trying to build alternatives to Chinese manufacturing while increasingly becoming a supplier within the same Asian production networks. AI generated image India’s economic relationship with China is becoming harder to describe in simple terms. New Delhi has spent years trying to reduce its dependence on Chinese imports, strengthen domestic manufacturing and build more resilient supply chains. Yet the latest trade trends point to a more complicated reality: India may be reducing some forms of dependence on China while becoming more deeply integrated with Chinese-linked production networks. This is not necessarily a contradiction. As India expands its electronics, engineering and manufacturing capabilities, its relationship with China could gradually shift from one dominated by finished-goods imports towards a more complex exchange involving components, intermediate goods and increasingly sophisticated Indian exports. The question, therefore, is no longer simply whether India can replace China. It is whether India can move high enough up the value chain to become an indispensable part of the Asian manufacturing ecosystem. For the world’s fastest-growing major economy, China is simultaneously a competitor, a supplier, a market and a critical link in global production networks. India’s challenge is to manage that interdependence without allowing it to become a strategic vulnerability. The shift is also taking place against a broader reordering of global supply chains. The pandemic, US-China tensions and growing concerns over the concentration of critical manufacturing in a handful of countries have encouraged multinational companies to adopt a ‘China plus one’ strategy. India is one of the principal beneficiaries of that diversification, but much of the new manufacturing capacity still depends on Chinese machinery, components and intermediate goods. Trade Deficit The scale of India’s dependence on China remains difficult to overlook. In FY2025–26, India imported $131.63 billion worth of goods from China, while its exports stood at just $19.47 billion, leaving a bilateral trade deficit of more than $112 billion. Electronics alone accounted for $49.21 billion of India’s imports from China, followed by machinery and electrical equipment worth $24.51 billion. Yet the more interesting development is happening on the other side of the ledger. India’s exports to China rose nearly 40 percent during the first five months of FY2026–27, reaching about $9.6 billion. Electronics and engineering goods were among the major drivers of this increase. Engineering goods exports to China also rose sharply in August, with shipments increasing by around 75 percent year-on-year to $424.65 million. The numbers are still too small to suggest that India’s trade imbalance with China is about to disappear. But they do point to something potentially more consequential: India is beginning to export more of the kinds of manufactured products that it has traditionally sought to build at home while importing heavily from China. That could mark the early stages of a different kind of relationship in which India is not merely a large consumer of Chinese manufacturing, but an increasingly relevant supplier within the same regional production ecosystem. The First Crack The clearest sign that India’s relationship with China may be changing is emerging in electronics. For years, the sector largely represented a one-way flow: Chinese components and equipment entered India, where they were assembled into products for domestic consumption or export. But that pattern is beginning to show an unusual reversal. India’s exports of printed circuit board assemblies (PCBAs) to China surged more than 40-fold in FY2025–26, from just $36 million to $1.5 billion. Nearly 80 percent of India’s total PCBA exports went to China, while overall Indian PCBA exports increased more than 20-fold to $1.9 billion. The numbers are still small compared with the broader bilateral trade relationship, and they should not be mistaken for evidence that India has suddenly become self-sufficient in electronics. India imported $46.4 billion worth of electronics from China in FY2025–26 alone. But the direction of trade is significant. Indian manufacturers are no longer participating in electronics supply chains only as assemblers dependent on imported Chinese inputs; some are beginning to supply intermediate products back into the Chinese ecosystem. That distinction matters because modern manufacturing is rarely about producing an entire product in one country. It is about occupying specific stages of a value chain. If Indian firms can become competitive suppliers of components, assemblies and specialised engineering products, India does not necessarily have to replace China to benefit from the reorganisation of global manufacturing. It needs to become a more valuable node within it. The rise in Indian electronics exports should not be mistaken for a broad-based reduction in dependence on China. In fact, the opposite is visible in several critical parts of the electronics supply chain. A recent analysis found that China supplied at least 80 percent of India’s imports across 71 electronics product lines in 2025–26, up from 44 product lines in 2018–19. The dependence is particularly concentrated in upstream components such as motors, cables and switching equipment. This reveals the central difficulty in India’s manufacturing strategy. Producing and exporting a finished or semi-finished electronic product is not the same as controlling the supply chain behind it. India has made considerable progress in assembly and is increasingly developing capabilities in areas such as PCBAs, but it remains reliant on imported components, machinery and other intermediate inputs. NITI Aayog has similarly noted that India’s electronics exports remain concentrated in final-assembly products, while the country continues to depend heavily on imports for critical components such as integrated circuits, semiconductors and batteries. The implication is important. India’s objective should not be to eliminate Chinese inputs overnight. Such an approach could make domestic manufacturing more expensive and less competitive. Instead, the longer-term challenge is to gradually build domestic capabilities in the layers of the value chain where dependence is greatest while continuing to participate in international supply chains where imports make economic sense. That is a more difficult strategy than simply replacing imports. It requires Indian firms to move from assembly to design, components, specialised manufacturing and eventually technology-intensive production. Only then can rising exports to China become evidence of a genuine shift in India’s position within global manufacturing rather than simply another layer of trade within an ecosystem that remains dominated by China. India’s relationship with China is unlikely to become a simple story of dependence followed by decoupling. The more realistic outcome is a gradual restructuring of that relationship. India can reduce vulnerabilities in critical sectors while remaining connected to the Chinese manufacturing ecosystem and, increasingly, becoming a supplier within it. For India, the objective should therefore not be to replace China at every stage of production. It should be to build capabilities that allow Indian firms to occupy more valuable stages of global supply chains. The surge in electronics and engineering exports to China may still be modest, but it points towards what that future could look like. The real measure of India’s manufacturing success will ultimately be whether it can move beyond assembling products to designing, supplying and exporting the components and technologies that make them possible. If it can do that, India will not have to choose between reducing its dependence on China and trading with China. It may be able to do both. (The writer is an economics postgraduate from Jawaharlal Nehru University with research interests in economic policy, trade and global governance. Views personal.)
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