India's $100 billion China trade deficit: Are non-tariff barriers blocking Indian exports?

Finance Minister Nirmala Sitharaman has flagged China's non-tariff barriers as a major obstacle to Indian exports, raising concerns over the widening trade imbalance between the two countries. India's trade deficit with China has exceeded $100 billion in the first nine months of the year, underscoring the challenge of improving market access for Indian businesses.

Speaking at an interaction with the Atlantic Council on the sidelines of the International Monetary Fund meeting in Bangkok, Sitharaman said China's restrictions were preventing Indian products from realising their potential in one of the world's largest markets.

“With China, I think our trade balance is against us, and it is growing exponentially,” Sitharaman said.

She added that China “uses non-tariff barriers unhesitatingly” and that this was “the biggest hurdle in the in the trade between India and China.”

Regulatory barriers constrain export potential

Sitharaman pointed to phytosanitary regulations, which are intended to prevent the spread of plant pests and diseases, as one of the barriers affecting Indian exporters. She said Indian products, including generic medicines, beef and vegetables, had “immense” potential in the Chinese market but faced restrictions.

Non-tariff barriers can include licensing requirements, product standards, testing procedures and sanitary or phytosanitary measures. While such regulations can serve legitimate health and safety objectives, differences in implementation and market-access requirements can increase compliance costs and make it harder for exporters to enter foreign markets.

For Indian businesses, improving access to China could create opportunities across pharmaceuticals and agricultural products. However, the extent to which these barriers account for the trade deficit would need to be assessed alongside other factors, including the competitiveness of Indian products and the composition of bilateral trade.

Sitharaman said India had refrained from imposing retaliatory non-tariff restrictions or countervailing duties on Chinese goods, despite the widening imbalance.

Trade concerns persist despite diplomatic engagement

The finance minister's remarks come as New Delhi and Beijing seek to stabilise relations following the border confrontation in 2020, which triggered prolonged diplomatic tensions and restrictions on Chinese investments and business activities.

Both countries have since taken steps to ease tensions and resume high-level engagement. However, trade remains a contentious area, with External Affairs Minister S Jaishankar also recently saying India was not “getting a level playing field in China.”

The widening deficit highlights the gap between efforts to improve diplomatic relations and the challenges businesses face in securing reciprocal market access.

Sitharaman also raised concerns over India's trade arrangements with Southeast Asian economies, describing existing agreements as “very skewed” against New Delhi. She said India intended to retain its trade agreement with the Association of Southeast Asian Nations (ASEAN), but its terms needed revision.

India's dependence on imported crude oil and fertilisers adds to its external-sector vulnerabilities by increasing foreign exchange outflows. Against this backdrop, improving export competitiveness and securing better access to overseas markets remain important to managing the country's trade imbalance.

(With agency inputs)