China Overtakes US as India’s Largest Trading Partner in FY26, Trade Deficit Hits $112 Billion

India’s trade map has shifted in a fundamental way. Government data released on April 15, 2026 confirmed that China has overtaken the United States to become India’s largest trading partner in the financial year 2025-26, with bilateral trade between the two countries reaching $151.1 billion during the period. This marks the end of a four-year run during which the US had held the top position, and returns China to a perch it had previously occupied between 2013-14 and 2017-18, and briefly again in 2020-21.

The development is significant for the structural imbalance it contains as well as what it implies about the volume of trade. India’s trade deficit with China reached a new high of $112.16 billion in FY26, a significant increase from $99.2 billion the year before. This is the first time the deficit has surpassed the $100 billion yearly benchmark, which was already exceeded in February.

“STORY | China surpasses US as India’s largest trading partner in FY26; trade gap swells to USD 112.16 bn – China has overtaken the US to emerge as India’s largest trading partner in 2025-26, with bilateral trade reaching USD 151.1 billion, while the country’s trade deficit with…”~Press Trust of India

The Numbers Behind The Shift: Exports Up, But Imports Far Higher

The data tells a mixed story on the export side. India’s shipments to China rose a sharp 36.66% during FY26 to $19.47 billion — a meaningful increase that reflects growing Chinese appetite for select Indian goods. However, the import side dwarfs that figure entirely. India’s purchases from China surged 16% to $131.63 billion in FY26, compared to $113.45 billion the year before. The gap between the two over $112 billion highlights just how lopsided the relationship remains.

The sectors driving this import dependence are well known: electronics components, telecommunications equipment, machinery, battery parts, industrial chemicals, and active pharmaceutical ingredients. These are categories where Indian domestic manufacturing has struggled to build meaningful scale, leaving the country structurally reliant on Chinese supply chains year after year. Despite the government’s Production Linked Incentive schemes aimed at boosting domestic output in electronics and other sectors, the import data suggests those efforts have not yet meaningfully reduced China’s grip on India’s supply chain for these goods.

China also remained India’s largest import source across all partners, followed by the UAE, Russia, and the United States.

“China surpasses US as India’s largest trading partner in FY26; trade gap swells to USD 112.16 bn”~Economic Times

How The US Picture Changed And Trump Tariffs’ Visible Impact:

The headline is China’s ascent to the top, but the context of India’s trade relationship with the US in FY26 is just as significant. India’s exports to the US reached $87.31 billion in FY26, a slight increase of just 0.92% from $86.51 billion the previous year. The US continued to be India’s top export destination throughout the year, a distinction distinct from being the country’s greatest trade partner overall.

The near-stagnation in export growth to the US is directly linked to the tariff measures imposed by President Donald Trump. The trade friction slowed India’s export momentum into the American market even as demand for Indian goods remained broadly present. Meanwhile, imports from the US climbed sharply from $45.63 billion in FY25 to $52.90 billion in FY26. The combined effect was a contraction in India’s trade surplus with the US, which fell from $40.88 billion in FY25 to $34.41 billion in FY26.

When discussing import and export patterns in March 2026, Commerce Secretary Rajesh Agrawal cited the Middle East crisis as a contributing factor: “One of the main causes has been the difficulties on the trade front due to the Middle East crisis – our exports to the Middle East in the month of March dipped by $3.5 billion.” It has decreased by 57.95% in percentage terms.

“India and the US will hold three-day talks in Washington from April 20 to recalibrate their proposed trade pact after major shifts in the US tariff regime. #IndiaUS #Tariff”~Fortune India

A Structural Challenge India Cannot Ignore:

The return of China to the top of India’s trading partner list arrives at a moment of broader geopolitical complexity. The two countries share a contested border that has seen military standoffs in recent years, and India has taken a number of steps to reduce economic dependence on China including restricting Chinese FDI, banning several Chinese apps, and pushing domestic manufacturing through PLI incentives. Yet the trade data continues to tell a different story.

During FY26, India’s exports to the United Arab Emirates, Germany, Brazil, and Vietnam all increased, although exports to several European markets, such as the Netherlands, the United Kingdom, and Bangladesh, moderated. Saudi Arabia, Japan, and Germany saw increases in imports, while Russia, Iraq, and Indonesia saw decreases.

The overall picture of India’s merchandise trade in FY26 was one of growth: imports increased by 6.47% while exports increased by 4.22% to $860.09 billion, resulting in a $119.30 billion trade deficit. A structural vulnerability that policymakers are closely monitoring as India navigates an increasingly complex global trade environment shaped by US tariffs, Middle East disruptions, and shifting supply chains is the China relationship, which accounts for a disproportionately large share of India’s overall trade gap.

“China surpasses US as India’s largest trading partner in FY26; trade gap swells to USD 112.16 bn”~Economic Times