India Faces Trade Challenges with China Amid Persistent Barriers

India's trade imbalance with China continues to widen, largely driven by Beijing's ongoing use of non-tariff barriers that limit Indian exports, according to Indian Finance Minister Nirmala Sitharaman. Speaking at the International Monetary Fund meeting in Bangkok, Sitharaman highlighted the challenges Indian exporters face, emphasizing that these barriers are a major obstacle to improving bilateral trade relations.

"With China, our trade deficit is significant and expanding rapidly," Sitharaman said during a discussion with the Atlantic Council. She pointed out that China applies non-tariff measures without hesitation, which has become the primary difficulty in India-China trade ties. Among these barriers, phytosanitary regulations stand out — rules designed to protect plants from pests and diseases but often used to restrict imports from India.

Sitharaman specifically mentioned that China denies access to several Indian products that have strong potential in its market, including generic pharmaceuticals, beef, and various vegetables. These restrictions have stymied India's efforts to increase exports to its largest trading partner.

The bilateral relationship between India and China deteriorated sharply after a deadly border clash in 2020, leading to mutual distrust and tighter controls on Chinese investment and businesses in India. Since then, both sides have gradually taken steps to reduce tensions along the border and re-establish diplomatic engagements. Recent meetings between Indian Prime Minister Narendra Modi and Chinese President Xi Jinping have focused on stabilizing the relationship and resuming dialogue.

Despite the growing trade deficit, which has exceeded $100 billion this year, India has refrained from imposing retaliatory non-tariff barriers or countervailing duties on Chinese goods. This stance reflects a cautious approach aimed at maintaining diplomatic balance. Earlier this week, India's External Affairs Minister S. Jaishankar also expressed concerns that Indian exporters do not receive equitable treatment in the Chinese market.

Beyond China, Sitharaman also criticized India's current trade arrangements with Southeast Asian nations, describing them as heavily skewed against Indian interests. While India intends to uphold its trade agreement with the ASEAN bloc, the finance minister emphasized the need to renegotiate terms to create a more balanced and favorable framework for Indian businesses.

India's economy remains the fastest-growing major economy worldwide, driven by robust domestic consumption and investment. However, Sitharaman noted that dependence on imported crude oil and fertilizers presents a significant economic vulnerability. The rising cost of these essential imports contributes to a substantial outflow of foreign exchange, impacting the country's trade balance and currency stability.

The Indian rupee has faced sustained downward pressure during the year. Higher oil prices have inflated India’s import expenses, while foreign capital outflows and elevated interest rates in the United States have increased demand for the US dollar. In response, the Reserve Bank of India has taken active measures to support the rupee. These include selling foreign currency reserves, introducing a special facility to assist state-owned oil firms with their foreign exchange needs, and tightening regulations around currency derivatives.

These interventions have helped the rupee recover from near-record lows, but the underlying challenges linked to the trade deficit and external vulnerabilities continue to weigh on the currency. As India seeks to strengthen its economic ties regionally and globally, addressing trade barriers and rebalancing agreements will be crucial steps in promoting sustainable growth and enhancing market access for Indian exporters.