India's High-Stakes Balancing Act - Navigating the New World Order
A Frosty Neighbourhood, A Necessary Forum: The China Conundrum
India's relationship with China has rarely been one of easy camaraderie. The unresolved border along the Line of Actual Control remains a flashpoint, infrastructure development continues apace on both sides, and a deep trust deficit persists. Yet, India's consistent participation in forums like the SCO and BRICS is a testament to its strategic foresight.
Prime Minister Modi's presence at Tianjin signals that while friction with Beijing is undeniable, India will not cede strategic space in Eurasia. The SCO offers a crucial conduit to Central Asia, a platform for counter-terrorism cooperation, and a potential pathway for connectivity projects that China and Russia would exclusively dominate.
For New Delhi, participation is not an endorsement; it is insurance. It is a clear message that India will engage in issue-based cooperation where its interests align, but it will staunchly resist any attempts to be co-opted into a China-led bloc.
The Economic Imbalance: A Structural Challenge
Beneath the diplomatic veneer, the economic reality of India-China relations is a powerful source of friction. India faces a widening trade deficit that poses a structural risk to its industrial self-reliance and financial security. In the 2024-25 fiscal year, India's exports to China barely reached $14.25 billion, dwarfed by imports from China, which surged to an alarming $113.5 billion. This created a staggering trade deficit of nearly $99.2 billion. China alone now accounts for approximately 35% of India's total trade imbalance.
This deficit is not merely a numerical figure; it reflects India's significant dependence on Chinese imports for critical sectors. As highlighted by trade data, India sources over 80% of its solar cells and flat panel displays from China, and over 75% of its lithium-ion batteries. In crucial niche products, such as antibiotics (97.7%) and viscose yarn (98.9%), the dependence is almost total. This reliance grants Beijing significant leverage, making India's supply chains a potential tool of pressure during heightened political tensions. De-risking this over-reliance is paramount.
Washington's Tariff Shock: Turbulence in a Key Partnership
On the other flank, relations with the United States – arguably India's most consequential strategic partnership over the past 25 years – have hit unexpected turbulence and years of meticulous effort had built momentum through defence interoperability agreements, critical technology collaborations, and a steady increase in bilateral trade.
President Donald Trump's abrupt decision to impose a 50% tariff on Indian imports, compounded by an additional punitive 25% duty linked to India's purchase of Russian oil, has sent shockwaves through New Delhi.
This move risks unravelling years of careful trade integration and exposes India's vulnerability to the vagaries of Washington's protectionist politics. Analysts estimate that these tariffs could impact approximately $48.2 billion in Indian exports, particularly hitting labour-intensive sectors such as textiles, gems and jewellery, and leather goods. This poses a "potentially massive negative" for India's crucial small and medium-sized enterprises (SMEs) and could shave 1-1.2 percentage points off India's GDP if the duties persist.
Combined with increasingly caustic remarks from some American leaders, the tariffs have compelled India to reassess its economic engagement with the U.S. on a fundamental level. Even so, New Delhi keenly recognises that technology partnerships, Indo-Pacific cooperation, and deepening defence ties remain vital pillars that must be meticulously insulated from these trade disputes.
Infographic: India's Trade Deficit with China (2024-25 FY Estimates)
SECURITY & TERRORISM: A Shared Threat, Divergent Approaches
Terrorism is a stated common concern for both India and the SCO. However, their approaches and priorities frequently diverge, creating a complex dynamic within the multilateral framework.
India's stance is unequivocally clear: terrorism is a global threat, and there can be no "double standards" in dealing with it. At the Tianjin summit, Prime Minister Modi reportedly pointed to the recent terror attack in Pahalgam, which tragically claimed 26 civilian lives, and called for the perpetrators, organisers, and sponsors of such violence to be held accountable. India has been an active participant in the SCO's Regional Anti-Terrorist Structure (RATS) and has taken a leading role in joint information operations against groups like Al-Qaeda and other terrorist outfits harboured and nurtured in India's neighbourhood.
The presence of Pakistan within the SCO, however, undeniably complicates this cooperation. India's profound security concerns are often rooted in cross-border terrorism emanating from its western neighbour, and it has consistently sought to hold Islamabad accountable for supporting terrorist groups. While the SCO's Tianjin Declaration condemned the Pahalgam attack and called for justice for the perpetrators, India remains acutely wary of any potential for the platform to be used to shield or legitimise state-sponsored terrorism.
For both China and Russia, the primary focus of SCO's counter-terrorism efforts has historically been on separatist movements in Central Asia and China's Xinjiang region. While this broadly aligns with India's goal of regional stability, it also highlights a potential for a narrow, politically motivated focus that may not fully address India's specific security concerns regarding terrorism originating from its western border.
A Strategy of "Multi-Alignment 2.0"
What then is the definitive way forward for India? The answer lies in a refined and robust strategy of "Multi-Alignment 2.0."
- Ring-fence Security Posture against China: Strengthening border deterrence and pursuing practical de-escalation protocols are essential. The SCO can be a platform for discussing regional counter-terrorism and narcotics control, but critical border disputes must remain strictly bilateral.
- De-risk the Economy from U.S. Tariff Unpredictability: While negotiations must continue, India must aggressively diversify its export markets to mitigate the risk of unpredictability in U.S. tariffs. Accelerated trade talks with the European Union, the United Kingdom, the Gulf Cooperation Council, and Latin America are now urgent. Cushioning the shock of U.S. duties through wider market access is paramount for economic stability.
- Double Down on Technology Coalitions: The U.S.–India tech corridor in semiconductors, quantum research, and defence co-development should remain a paramount priority, even amidst trade frictions. Simultaneously, the SCO and BRICS platforms offer opportunities to showcase India's indigenous digital public goods and influence emerging global technology standards.
- Plural Sourcing for Energy Security: India must strike a balance between its reliance on Middle Eastern and discounted Russian oil and long-term investments in renewable energy and green hydrogen partnerships, thereby ensuring a diverse and resilient energy supply chain.
- Prioritise Maritime Engagement: India's extensive maritime engagement – spanning the Indo-Pacific with partners such as Japan, Australia, France, and Indonesia – should take precedence, while continental commitments in Eurasia are managed through minimal, results-oriented engagement.
A Pivotal Moment for a Resilient India
The current geopolitical squeeze is not a crisis for India, but rather a pivotal moment. By attending the SCO summit while facing U.S. tariffs, New Delhi is not being forced into a binary choice; instead, it is affirming its strategic autonomy. The way forward demands a pragmatic, multi-aligned foreign policy that recognises the transactional nature of global relationships.
Ultimately, India's resilience will be defined by its ability to secure vital technology corridors with Washington even as it diversifies its export markets, and to manage its continental friction with Beijing while leveraging multilateral forums for its own strategic ends. The success of "Multi-Alignment 2.0" will depend on New Delhi's capacity to turn today's challenges into tomorrow's opportunities, proving that in a fragmented world, a nation's greatest asset is not its allegiance to one bloc, but its ability to stand on its own.
The Bottom Line: An Enduring Tradition of Pragmatism
India's foreign policy, at its best, has always been about striking a balance between high-minded principles and hard-nosed pragmatism. In today's transactional and turbulent world, that tradition is once again its greatest asset. The road ahead is undoubtedly complex, but by staying engaged, safeguarding its strategic interests, and diversifying its partnerships, India can not only weather the storm but also emerge stronger and more resilient as a leading voice in a new global order.
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