CHINA’S RISE AS INDIA’S THIRD-LARGEST EXPORT MARKET

India's export market has seen a significant transformation. China overtook the Netherlands as India's third-largest export market in February 2026. While overall exports decreased by 0.81% to $36.61 billion, exports to China increased by 32.4% to $1.67 billion. This change reflects broader shifts in supply chains, international trade, and growing Chinese demand across several industries.

Throughout the month, exports to seven of India's top ten markets decreased. The total amount of exports decreased by 0.81% year over year to $36.61 billion. Over half of India's merchandise exports are to these ten nations. Due in large part to a low beginning point, exports to China rose by 32.4% to $1.67 billion in February. Although the month's data is not yet available, prior patterns suggest that increased exports of electronics and marine equipment have contributed to growth.

The Netherlands' Decline

Perhaps the most noticeable aspect of the recent data is the changing fortunes of India’s trade partners. The peak in exports to China after the pandemic was mainly driven by a rise in demand for agricultural raw materials and iron ore. However, this month's exports to the Netherlands, which was the third-largest export market in the fiscal year 2023-2024, fell sharply by 31.3% to $1.29 billion. Over the last three years, the Netherlands has become a key destination for refined petroleum exports and an important entry point for Indian goods into Europe.

According to an industry expert, the decline may be related to the reduced shipments of refined petroleum, as India has cut back on imports of Russian crude oil for refining.

The Paradox of India–China Trade

The rise of China in India’s export basket is seen as a paradox given the tense relations between the two countries in the wake of the Galwan Valley clash. In India, the narrative has revolved around military confrontations, diplomatic tensions, and the quest for economic decoupling, with self-reliance and diversification being the watchwords.

The role of China as the world’s manufacturing hub has largely remained the same. The industrial sector of China, which has evolved over the years, needs a constant feed of intermediate products and raw materials. India has seemed to be the viable option in this context due to the availability and production capacity of the products. The rise in exports has also indicated that the Indian industry is capitalizing on the huge market of China in sectors like chemicals, electronics, and marine products.

The increasing exports to China are not the result of any deeper level of strategic understanding but are instead the result of pragmatism in the face of market forces. This is not being driven by politics, but rather by the natural flow of the supply chain and the markets. This, in turn, points to the structural problem that has existed between India and China for so long.

Pre-COVID-19 phase: India-China trade had grown rapidly before the COVID-19 pandemic. However, there was a significant trade imbalance. In 2008, China became India's largest trading partner. In the last ten years, trade between India and China has grown exponentially.

1. Trade has grown from $38 billion in 2007-08 to more than $87 billion in 2018-19.

2. However, this trade has been one-sided in favor of China.

3. India's trade deficit with China was recorded to be as high as $63 billion in 2017-18. It has slightly reduced to $53.57 billion in 2018–19.

 This highlighted a key structural issue: India’s growing reliance on Chinese imports, especially in critical industrial sectors.

Post-COVID phase: Global trade flows, including those between China and India, were initially disrupted by the start of the COVID-19 pandemic. In 2020, we saw a brief disruptionis the imports and exports; this disruption did not last long, though. As global supply chains adjusted, trade between the two nations gradually increased. Important developments in the post-COVID era include:

1. Resilient trade recovery: In the years that followed, bilateral trade resumed and even increased in spite of geopolitical tensions.

2. Persistent trade deficit: India's reliance on Chinese imports was still apparent, and the deficit remained high.

The nature of trade relations between China and India was not impacted by the pandemic. Instead, it was an affirmation of an existing fact: economic relations between these two countries were already established and immune to sudden political shocks.

Sectoral growth driven by exports

The increase in exports to China has been primarily driven by the rise in exports from a few major sectors, as their demand is increasing at a rapid pace.

One such sector is the electronics industry, which is becoming a major contributor to the rise in exports to China. As the domestic production sector is increasing at a steady pace, India is moving towards becoming one of the major players in the world electronics industry. The increase in exports of electronic components and electronic devices to China indicates that Indian companies are entering the regional production network.

Another sector that has played a major role in the increase in exports to China is the marine products sector, as the huge market in China provides Indian exporters with the advantage of a steady and increasing demand for marine products. India’s huge coastline and marine resources, along with existing infrastructure facilities, make the marine products sector one of the more stable segments in India’s export basket.​

Economic Benefits: A growing market door

The rise of China as an important export destination for India represents an intricate yet promising prospect. Even as the two countries are locked in an intense rivalry due to the conflict in the Galwan Valley, the scope for increased economic cooperation between them is only expanding, driven by the realities of the market rather than any political affinities.

China’s large and complex industrial landscape, along with its enormous size as an economy, ensures sustained demand for raw materials and intermediate goods, areas where India has a significant competitive advantage. The exports of raw materials, chemicals, and marine products have found an important and stable market in China.

The expansion of exports to China allows India to break out of its dependence on the traditional Western economies, such as the United States and the European Union, particularly in an uncertain global economic scenario. Furthermore, the geographical proximity of the two countries also ensures lower transportation costs, thus making the exports of India more competitive.

Essentially, China provides India a tremendous “market door” for export potential. However, for India to benefit from this opportunity, it has to climb up the value chain and make sure that this opportunity does not lead to economic dependence.

Geopolitical Context: Trade in a Multipolar World

In an era marked by shifting power dynamics and economic uncertainty, India’s foreign policy is guided by the principle of strategic autonomy. Within this approach, India continues to sustain economic ties with China despite ongoing political and security tensions, reflecting a pragmatic understanding that economic and geopolitical interests do not always align.

At the same time, India is strengthening its relationships with Western nations and Indo-Pacific countries to expand its global outreach and influence. Its involvement in the Quadrilateral Security Dialogue is an indication of its strengthening relationships with other nations like the USA, Japan, and Australia, especially in areas like maritime security and emerging technologies. At the same time, India is an active member of other global formations like BRICS and the Shanghai Cooperation Organisation, which include nations like China and other non-Western nations.

Thus, there is a clear indication that India is adopting a very pragmatic and calculative foreign policy strategy. Rather than viewing global politics in black and white, India is taking a middle path in global politics where there is cooperation, where there is convergence of interests, and where there is competition, where there is divergence of interests. By maintaining its economic relationship with China and strengthening its strategic relationships elsewhere in the world, India is able to achieve its economic goals and expand its global outreach.

The Way forward

As China becomes a major export destination, India needs to adopt a well-planned strategy. This should maximize economic gains while protecting long-term interests. The goal is not only to improve the trade but also to reduce the exposed vulnerabilities.

India needs to focus on shifting its commodity-based exports to high-value manufacturing and technology-based sectors. This will help India improve the quality of its exports and make its position stronger. Although the position of China as a top export destination for India reflects the mutual dependence of these two economies despite their geopolitical tensions, this situation presents India with both opportunities for growth and strategic challenges.

The way forward for India is to find a balance between these two situations. India needs to be strategically aware and economically engaged with China, diversified without becoming isolated, and economically integrated into the global economy without becoming economically weak. This will help India turn this new trade relationship into a strength rather than a weakness.

Conclusion

The fact that China has replaced the Netherlands as India’s third-largest export partner is more than a statistical reality; it is a reflection of the reality of emerging global trade patterns and India’s role in them. It is a reminder that reality often outpaces rhetoric, challenging us to keep pace with the emerging reality and respond accordingly.

This is a critical juncture that requires a strategic choice: to continue as a provider of raw materials in a lopsided model of trade or seize this opportunity to transform its entire export profile. The move towards higher value-added goods and services is not only a necessary economic imperative but also a strategic imperative for a nation that aspires to enhanced autonomy and competitiveness in a rapidly changing world.

In a world that is uncertain, more fragmented, and more competitive than ever, the journey of India into the future will be dictated by its capacity to balance the risks and the opportunities in a delicate manner. The challenge for India is no longer to grow its exports but to improve the quality of its engagements with the world outside its borders. The real challenge for India will be to export smarter and engage the world with greater depth and strategic insight.