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From punitive US trade measures to long-running tensions with China and growing dependence on Russian energy, India spent the year balancing competitive risks in an increasingly transactional global order.
The year began with optimism regarding relations with Washington under US President Donald Trump’s second term; The first meeting of the administration right after Trump was sworn in was the Quad meeting which also included India. That optimism collapsed after Trump announced reciprocating tariffs in April and ultimately imposed a 50% tariff on Indian exports – half of which was a penalty for buying Russian oil.
With this move, unlike in two decades, India faced higher US tariffs than China. “Made with hard work” relationship. Analysts described the decision as a serious blow to a partnership that had been strengthened in part by shared concerns over China.
India protected its national interest, adopting a measured approach while focusing on increasing access to alternative partners. Tensions with the US, India’s largest trading partner, essentially shaped India’s foreign trade outlook.
diversifying global trade
While talks with the US are still ongoing, India pursued trade diversification more aggressively and finalized deals with three countries including the UK, Oman and New Zealand.
The India-UK Comprehensive Economic and Trade Agreement provides duty-free access to 99% of Indian exports by value. The UK agreed to reduce the whiskey tariff from 150% to 75%, reducing over time to 40%.
The Oman agreement provides duty-free access for 98% of Indian exports, while the New Zealand agreement aims to double bilateral trade within five years.
While these are efforts to hedge against US trade volatility and a signal that India has options, they have not yet had any material impact on the market. Analysts have also warned that the FTA cannot replace the scale of the US market, which is expected to absorb $87 billion of Indian exports in 2024 alone.
For the short term, piecemeal strategies are in play. The loss of marine exports was offset by EU approval of fisheries. In September, the EU approved 102 new Indian fisheries units for export, taking the total number of EU-approved establishments to 604.
However, some believe that trade deals are not enough to solve the domestic problems in the Indian economy. Anoop Wadhawan, former Commerce Secretary of the Government of India, said, “The single issue that needs to be addressed is to make India more business-friendly.” Wadhawan believes that in the end, a good business environment will bring growth and prevent Indians from looking for better opportunities abroad and contribute to economic growth at home.
China relations: thawing without trust
To its north, India took cautious steps to stabilize ties with China in 2025, even as the relationship remained hampered by deep mistrust over the disputed border.
Prime Minister Narendra Modi and Chinese President Xi Jinping met for the first time in seven years on the sidelines of the Shanghai Cooperation Organization (SCO) summit in August. Both sides publicly described each other as “development partners and not rivals”, indicating an effort to move beyond the post-2020 standoff. It should be noted that apart from military disengagement there has been no significant breakthrough on the border issue.
Other confidence-building measures this year include resumption of direct flights, reopening of Kailash Manasarovar pilgrimage and gradual revival of people-to-people exchanges.
However, friction continued. Beijing maintained close coordination with Pakistan after the April terrorist attack in Pahalgam and later in the year, detained two Indian travelers, reiterating its territorial claims on Arunachal Pradesh.
the balancing Act
India’s relations with Russia in 2025 reflect the balancing act at the core of its foreign policy. It maintained exemptions on oil imports and hosted President Vladimir Putin for a summit in December, where he promised “unimpeded” oil shipping.
Russia has become India’s largest crude oil supplier with bilateral trade reaching $68.7 billion in fiscal year 2024-25. Both countries said their partnership is “resilient to external pressure”.
As geopolitical influence and competition grow and tolerance for strategic ambiguity diminishes, India’s ability to manage parallel relations without formal alignment will remain a decisive test for its foreign policy.