INDIA CHINA Connect

India–China trade hit a record $155 billion in 2025, growing over 12% amid expanding economic engagement. China supported India’s BRICS presidency, while the Modi–Xi meeting in Tianjin revived diplomatic and people-to-people ties. India’s exports to China rose nearly 10%. Relations improved significantly since October 2024.

India’s exports to China climbed 37% to $14.2 billion during April–December, with December 2025 shipments jumping 67%. Imports rose 13.5% to nearly $96 billion, led by capital goods, intermediates, and raw materials. Some sectors, including fertilisers and chemicals, saw declines, while rising electronics imports signaled expanding digital and manufacturing capacity.

The United States reduced additional tariffs on Indian goods from 50% to 18%, improving export competitiveness. Textiles, leather, and seafood are key beneficiaries. The move followed Modi–Trump phone talks signaling warmer bilateral ties. India now enjoys a tariff edge over several Asian peers, while Trump’s energy and Russia-related claims remain unconfirmed by New Delhi, according to recent official statements there.

Global real GDP growth is projected at 3.1% in 2026, led largely by emerging markets. China and India together generate over 43% of worldwide growth, at 26.6% and 17% respectively. Advanced economies are losing influence, with the U.S. and EU contributing about 16%. Asia-Pacific dominates regionally, accounting for nearly 60% of global growth, underscoring shifting economic power in coming years.

Larry Fink calls the next 20–25 years the “Era of India,” naming it his top long-term investment destination. He expects 8–10% growth for the next decade or more. Strong domestic savings, supported by foreign capital, underpin this outlook. Broader market participation and sustained AI investment are seen as critical for India’s future global leadership and economic transformation over the long term.

India’s Index of Industrial Production jumped 7.8% in December 2025, its fastest pace in over two years, exceeding forecasts. Manufacturing, mining, and electricity drove the rebound, with 16 of 23 industries expanding. Infrastructure goods and consumer durables recorded double-digit growth, signaling robust investment and consumption. Overall industrial output rose 3.9% during April–December, pointing to sustained momentum heading into 2026.

India is expected to be the fastest-growing major economy, accounting for roughly 20% of global growth. The World Economic Forum sees a possible India–US trade deal as an added catalyst. Swift reforms have strengthened confidence in India’s medium-term outlook. Davos debates remain shaped by geopolitical uncertainty, while AI is viewed as a powerful growth driver that also raises significant security and governance risks worldwide.

The India–EU FTA provides zero-duty access, aiming to double gems and jewellery trade to $10 billion within three years. Eliminating 2–4% tariffs strengthens India’s competitiveness in the EU’s high-value market. The agreement benefits major export hubs and diverse jewellery segments, supporting employment, improved margins, and broader market diversification for Indian exporters.

India has reduced its US Treasury holdings to a five‑year low of about $174 billion, down 26% from 2023. Treasuries now make up roughly one‑third of foreign reserves, compared with 40% a year earlier. The RBI is diversifying into gold and non‑dollar assets amid geopolitical and sanctions risks, while sales also help support the rupee during trade tensions and high US tariffs.

The historic India–EU FTA, concluded after two decades, strengthens ties amid global trade uncertainty. It grants duty‑free access on over 99% of Indian exports, boosting labour‑intensive sectors and MSMEs. The pact expands access to the $20‑trillion EU market, benefits major states, enhances services trade, mobility, jobs, and Make in India, while reinforcing a rules‑based global trade order.

China is shifting from reliance on dollar dominance toward building a parallel, sanctions‑resistant financial system. RMB internationalisation is gradual, avoiding full convertibility to limit risks. The strategy reduces dollar exposure through lower US Treasury holdings and higher gold reserves while opening equity and bond markets to deepen foreign dependence. India can draw lessons on managing currency risk and pursuing bond index inclusion.

The IMF has raised India’s 2025 growth forecast to 7.3%, driven by stronger corporate earnings and economic momentum. Growth is expected to ease to 6.4% in 2026–27 but remain above global averages. India is set to outperform major economies and lead emerging Asia, as global growth holds at 3.3% amid AI investment, despite risks from valuations, trade tensions, and geopolitics.

India and the UAE aim to reach $200 billion in bilateral trade by 2032 under CEPA, underscoring closer economic ties. A long‑term LNG agreement strengthens India’s energy security. Cooperation in defence, space, and supercomputing signals high‑tech alignment, while investments in Dholera SIR and GIFT City deepen industrial and financial integration, complemented by strong cultural and people‑to‑people links.

Startup India marks a decade with startups raising $151 billion and producing 118 unicorns. More than 25,000 funding rounds since 2016 have made India a major global startup hub. Registered startups grew from 500 to over 200,000, supported by policy reforms. After funding peaked in 2021–22 and slowed post‑2022, attention is shifting to sustainable, execution‑focused, deep‑tech‑driven growth.

India attracted $51 billion in foreign direct investment over six months, signalling strong global investor confidence. FDI rose 17% year-on-year to $26.61 billion in April–June 2025. The government is steering capital toward manufacturing, R&D and technology-intensive sectors, supporting deep-tech startups focused on commercialising advanced research.

India’s textile sector crossed ₹60,000 crore in investments in 2025, with momentum expected to continue in 2026. PM MITRA and PLI schemes are driving capacity, exports and jobs. PM MITRA Parks attracted over ₹14,000 crore and 38,000 potential jobs, alongside rising foreign investment and a sustainability-focused shift to advanced textile technologies.

India recorded no negative agricultural income growth between 2015–16 and 2024–25, with average farm sector growth of 4.42%, surpassing China and global trends. Farmers’ incomes more than doubled, outpacing manufacturing. Agriculture remained resilient during Covid and climate shocks, underpinning “Viksit Bharat 2047” through jobs, diversification and rising productivity.

India’s exports to China rose 33% to $12.22 billion during April–November, the highest in four years. Amid high US tariffs, exporters are diversifying markets. Growth spans electronics, agriculture, marine products and base metals, signalling a structural shift. India is also considering easing 2020 curbs on Chinese firms, which could further strengthen bilateral trade.

The World Bank raised India’s FY27 growth forecast to 6.5%, citing strong domestic demand and resilient exports, keeping India the fastest-growing major economy despite higher U.S. tariffs. It said easing trade tensions could lift exports and foreign investment. Technology and AI may boost productivity and jobs. FY28 growth is seen at 6.6%, with inflation near the RBI target levels expected.

India’s exports to Hong Kong rose by $955 million year-on-year to $4.97 billion during April–November FY26, driven by high-value goods. Cut and polished diamonds led growth, adding $477 million. Electronics, silver jewellery and processed stones also saw strong demand, strengthening supply chains and helping India diversify exports amid higher US tariffs.