India has a trade deficit of about USD 37 billion with the neighbouring country.
Federation of India Export Organisations (FIEO) also said that India should resume the FTA with the European Union.
"Why we are afraid of China. If we will enter FTA with China, it will benefit us. The government should not hesitate to talk about this. If Thailand can have an FTA with China, why not India. India should seriously look at this," FIEO President Rafeeq Ahmed told reporters here.
The statement assumes significance as Indian manufacturing industry is strongly against FTA with China. The industry always complains of dumping of Chinese products in India which has already imposed anti-dumping duties on them.
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The Department of Industrial Policy and Promotion (DIPP), under the Commerce and Industry Ministry, too has opposed these pacts saying it impacts manufacturing sector.
India has asked China to give greater market access to products particularly in areas such as pharmaceutical and services to reduce the ballooning deficit.
"India should take advantage of this opportunity. Setting up of export clusters or parks will help in attracting investments which are shifting from China," he said.
Further he said that FTA with EU would help in boosting exports of sectors including textiles and leather.
India and the EU are negotiating the Bilateral Trade and Investment Agreement (BTIA) since June 2007 and have missed several deadlines to conclude the talks due to differences among the two sides on the level of opening up of the markets.
India has implemented FTAs with Japan, Asean, Bhutan, Nepal, Sri Lanka, Thailand, Singapore, South Korea and Malaysia.