Imports From China Rise 71% as Electronics Assembly Deepens India’s Dependence on Chinese Components

The news

New Delhi. After Prime Minister Narendra Modi and Chinese President Xi Jinping met on the sidelines of the BRICS summit in Delhi on September 12, India said the two leaders had underlined the need to address each other’s concerns, including “structural trade imbalance and supply chain issues”. A Data Point analysis by Surendar Singh in The Hindu sets out what that imbalance is. Bilateral trade touched $167.6 billion in 2025. India’s exports to China stayed broadly stagnant between 2021 and 2025, while imports from China rose about 71%, from $87.5 billion to $149.5 billion. Nearly 70% of India’s imports from China are intermediate goods — inputs such as parts, components and semi-processed materials that go into other products — and another 22% are capital goods, the machinery used to produce goods. The author argues this shows the deficit is not simply Indian consumers buying Chinese finished products but a structural dependence of Indian manufacturing itself. The combined value of the top five import categories rose from $19 billion in 2021 to $34.6 billion in 2025, close to one-fourth of total imports from China, and telecom equipment, laptops and integrated circuits remain among them. India has emerged as a major hub for mobile phone assembly, but the share of imported parts and components in the import basket has risen from 3.3% in 2022 to 10.1% in 2025. The author calls this the “assembly trap” of self-reliance: manufacturing growth driven by downstream assembly — putting together imported parts — rather than by a deep domestic component ecosystem, despite Make in India and the Phased Manufacturing Programme. His prescription is to shift incentives from assembly to technological capability, supplier networks and components, and to use calibrated tariffs on parts and components rather than blanket restrictions. The international context is moving too: The Indian Express reports from New York that US Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng began talks on September 20 on tariffs, AI and critical minerals, ahead of a Trump-Xi summit, with a US-China trade truce due to expire on November 10. The syllabus link is industrial policy, trade and the capital factor of production: which machines, parts and technologies India owns and which it rents.

Static syllabus linkage

1. The Phased Manufacturing Programme used tariffs to pull component production inward. The Ministry of Electronics and Information Technology notified the Phased Manufacturing Programme for mobile phones in 2017. It raised basic customs duty on phones and then, in stages, on sub-assemblies and components such as batteries, chargers and displays, so that each stage of production would become cheaper to do in India than to import. The underlying idea is that tariffs create a protected domestic market in which component makers can reach scale.
2. Production Linked Incentives pay for sales, not for value added. The PLI scheme for large-scale electronics manufacturing was notified in April 2020, offering an incentive of 4% to 6% on incremental sales of goods made in India over a base year. It was later extended to 14 sectors with an outlay of about ₹1.97 lakh crore announced in the Union Budget 2021-22. Because the incentive is tied to sales rather than domestic value addition, it rewards the fastest route to output, which is often assembly of imported parts; the Electronics Component Manufacturing Scheme approved in 2025 was designed to address the component gap.
3. Press Note 3 of 2020 governs Chinese investment. Since April 2020, under Press Note 3 of the Department for Promotion of Industry and Internal Trade, foreign direct investment from any country sharing a land border with India requires government approval, rather than coming in through the automatic route. The rule was introduced to prevent opportunistic takeovers during the pandemic, and in practice it applies mainly to China. It is one reason why Chinese component makers have been slower to set up plants in India than to export to India.
4. Where value is added in a global value chain. A global value chain is the sequence of stages — design, components, assembly, branding and distribution — that are spread across countries. The share of value captured is typically high at the design and component end and at the brand and service end, and lowest in assembly, a pattern often described as the smile curve. A country can therefore show rising exports of a finished product while capturing a small share of its value, which is why the import content of exports matters more than the export figure itself.

Why UPSC loves this

1. Industrial policy and self-reliance are recurring Mains themes. GS3 covers “changes in industrial policy and their effects on industrial growth” and “effects of liberalization on the economy”. Questions have asked whether Make in India has delivered on its manufacturing goals, and this story supplies precise evidence for the gap between assembly and capability.
2. India-China relations are asked in GS2 through the economic lens. The trade deficit with China is a standing part of the bilateral relationship, and the September 12 statement on “structural trade imbalance” connects economics to diplomacy. The examiner rewards candidates who can use trade composition, not only the total deficit.
3. Prelims tests the schemes and their parent ministries. PLI, the Phased Manufacturing Programme, Press Note 3 and the definitions of intermediate and capital goods are fair game. Transient figures such as this year’s deficit are not, but the design of each instrument is.

Analysis

1. The deficit is a fact about Indian factories, not Indian shoppers. If about 92% of imports from China are intermediate and capital goods, then most of the deficit is Indian manufacturers buying inputs. Restricting these imports would raise costs for the same firms that India wants to export. This is why blanket measures are counterproductive and why the author proposes calibrated tariffs. The difficulty with even calibrated tariffs is that India competes with Vietnam and Mexico for export assembly, and those countries keep component tariffs low; every rupee of duty on a part is a rupee added to the price of the exported phone.
2. PLI measured the wrong variable and got what it measured. An incentive tied to incremental sales rewards the fastest way to increase sales, which is to import components and assemble them. The rise in the share of parts and components from 3.3% in 2022 to 10.1% in 2025 is therefore not a failure of the scheme’s implementation but a consequence of its design. The counter-view is serious: China, South Korea and Vietnam all began with assembly, and component makers follow once an assembly base provides assured demand. The question is whether India is on that path or stuck at the first stage, and four years of data do not settle it.
3. The bilateral deficit is the wrong metric but the right warning. Economists rightly argue that a bilateral trade deficit by itself is not a problem; countries run deficits with some partners and surpluses with others. The concern with China is concentration and leverage. When integrated circuits, telecom equipment and machinery come from a single country that has shown willingness to restrict exports — as it did with rare-earth magnets in April 2025 — the deficit becomes a strategic vulnerability, not an accounting fact.
4. Security rules on investment trade off against capability. Press Note 3 keeps Chinese capital out of Indian manufacturing without prior approval, which serves security. But components require technology, and the firms that have that technology are often Chinese. The result is that India imports Chinese parts instead of hosting Chinese plants that would employ Indian workers and train Indian suppliers. A selective approval regime for joint ventures in components, with conditions on technology transfer and local sourcing, could convert an import dependence into a production base; the risk is that it deepens strategic exposure.
5. The US-China talks change India’s bargaining position. If Washington and Beijing reach a new truce before November 10, the pressure on global firms to move supply chains out of China may ease, and India’s pitch as an alternative weakens. If the truce collapses, India gains as a destination but faces higher costs for Chinese inputs. Either way, India’s self-reliance strategy is being shaped by a negotiation it is not part of, which argues for building component capacity while the window of global diversification is open.

Administrator's brainstorm