A toy shelf in Delhi or Mumbai now looks different from how it did six years ago, and that shift tells a bigger story about India's uneasy economic relationship with China. By raising tariffs on imported toys from 20% to 70% and tightening quality standards, India managed to shrink its reliance on Chinese toy manufacturing and grow its own export base. It is one of the few places where a deliberate policy push has actually narrowed the gap with Beijing - even as the overall trade deficit between the two countries has nearly tripled since 2020.
A Rare Win Surrounded by a Widening Gap
India's toy sector offers a clean case study: higher duties, enforced quality controls, and a protected window for domestic producers to scale up. Imports fell, exports rose, and China's grip on the local toy market loosened. But this success has not translated across the broader economy. Even as diplomatic relations froze after the 2020 Galwan Valley clashes, and India banned Chinese apps and imposed anti-dumping measures, the trade deficit with China grew sharply. Exports to China have stayed below pre-pandemic levels while imports have doubled, leaving India more exposed, not less.
Why Dependence Runs Deeper Than Consumer Goods
The toy example involved finished products that could be substituted relatively easily once tariffs made Chinese imports costlier. Most of India's trade with China does not work that way. China now supplies a large share of India's industrial imports - electrical machinery, electronics, mechanical appliances, organic chemicals and plastics - and India depends on it for more than one hundred products described as critical. Even flagship manufacturing wins, such as India's growing share of global iPhone assembly, rest on imported Chinese components. The assembly happens in India; much of the value chain behind it does not.
- Electrical machinery and electronics make up roughly a third of India's imports from China
- Machinery and mechanical appliances account for a further significant share
- Battery inputs, solar cells and industrial chemicals remain heavily import-dependent
Structural Forces Keeping the Imbalance Alive
China's own economic pressures add to the problem. Overcapacity in steel, solar panels and electric vehicles, combined with a slowing domestic economy, pushes Chinese manufacturers to sell aggressively overseas. As Western markets raise their own tariff walls, India - with its expanding manufacturing base - becomes a natural destination for that excess output. Meanwhile, Indian exporters say they face tariff and non-tariff barriers trying to enter the Chinese market, limiting any offsetting growth on the other side of the ledger.
What Narrowing the Gap Would Actually Require
Diplomatic normalisation alone will not fix an imbalance built on industrial dependency. Analysts argue India needs sector-specific industrial policy, more reliable power and credit access, stronger logistics, and consistent regulation to build manufacturing capacity that does not simply assemble imported parts. Recently relaxed rules on foreign investment could bring in Chinese capital, but without careful screening, that investment risks deepening import reliance rather than reducing it - unless it is tied to technology transfer, local component production and export output from India. Targeted export gains, in sectors like pharmaceuticals, could help at the margins. But the deeper question, as one analyst put it, is whether Beijing is willing to open real market access - or whether India will need to find its own leverage to force that outcome.