By N Chandra Mohan
Looking ahead, India’s strategic challenge is to navigate through a world economy that is fragmenting broadly into US- and Sino-centric blocs. Due to the hegemonic struggle for dominance between Washington and a resurgent Beijing, trade and investment flows between these blocs are declining by more than within these blocs since the last four years. How India leverages the opportunities thrown up by global fragmentation has a major bearing on its higher levels of ambition on the trade and investment front to become a developed nation by 2047. India’s policy choices in this regard are no doubt complicated by the stress in its current ties with the US despite a strategic relationship and continuing face-off on the border with China.
Although the fracturing of the global economy along geopolitical lines has been observed by the International Monetary Fund and World Trade Organization (WTO), this process has been authoritatively examined in Neil Shearing’s new book, The Fractured Age. At the outset, he argues that fracturing does not imply de-globalisation as trade flows continue to increase and cross-border capital flows remain high. The vast majority of global trade is broadly unaffected by US-China fracturing which impacts only 15% of flows of strategic goods like high-tech electronics, green technologies, and critical minerals. In this milieu, non-aligned countries may wish to engage with both blocs but Shearing makes the point that they will have to pick a side.
Why India may lean toward the US?
The big question naturally is, which side will India take? The temptation naturally will be to align with the US with whom India has a strategic relationship and a shared interest to limit the power and influence of China. The foundation of the Indo-US relationship is obviously economics. America’s deepening engagement with the world’s fastest-growing economy is undergirded by trade and investment flows. As India’s largest export market, it has purchased 48 times more of our merchandise than China did in FY26 till November. The US has also cumulatively invested 28 times more in India than has the dragon from April 2000 to March 2025. An equally important factor is the growing profile of the Indian diaspora—which is perhaps the wealthiest ethnic community—that has registered its presence on the political front in the US.
However, India’s shift away from leaning to the US appears inevitable thanks to the America First disruption of President Donald Trump. He has upended decades of progress in nurturing this strategic relationship by slapping 25% reciprocal tariffs on Indian goods and another 25% for purchasing Russian oil. Trump has again threatened higher tariffs if these purchases continue, bedevilling prospects of a trade deal. Although we secured a portion of Apple’s smartphone production shift away from China, similar fracturing-driven opportunities appear highly unlikely. India, for instance, is out of the US-led strategic initiative, Pax Silica, to build a secure supply chain for critical minerals and energy inputs for advanced manufacturing and semiconductors.
Ties with China still uneasy
Aligning with China is equally problematical. Although tensions have de-escalated on the border, de-induction and disengagement of troops has not begun. Like the US, the dragon has used coercive economic measures to impose its will on an economically weaker India, like blocking shipments of rare earths, fertilisers, and tunnel boring equipment. Although there are possibilities of exporting more to China—like the reverse-trade model for drugs—India’s trade imbalance is massive and accounts for 35% of its global trade deficit. The dragon is also uncomfortable with Apple’s shift of a part of its smartphone production to India and has filed multiple disputes at the WTO challenging India’s schemes in electronics.
Unfortunately, there are no easy solutions for the fraught border situation that can restore normalcy in bilateral economic relations. Over the long haul, it can be resolved by narrowing the economic power differential between India and China. The fact remains that the dragon is five times larger than India as the second-largest economy in the world. This is reflected in relative military strength, with India in a disadvantageous position to resolve the issue through force. India must steadily build up its economy through rapid growth to narrow this differential. By amassing troops and making border incursions at will, China only recognises India only as a weaker neighbour and not as one with whom it can persuade to join its bloc as an ally.
The upshot is that the option of opportunistically aligning with either bloc does not appear feasible. The most efficacious course of action, however, is for India to concentrate on building its strengths to remain the world’s fastest-growing large economy and improving its trade prospects and investment inflows through a network of free trade agreements with important developed powers like the European Union, and the Global South and mega regional groupings like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. Shearing notes that India may not have the heft to challenge the US and China but its size and growth will encourage it to play a more strategically autonomous role in world affairs. The prospect then is for Washington and Beijing making efforts to court its support on key issues as India copes with a fractured age.
The writer is an economics and business commentator based in New Delhi.