Introduction
The Economic Survey 2025–26 identifies geopolitical fragmentation as a major external risk to India’s growth. Simultaneously, South Asia has become the principal arena of US-China strategic competition, challenging India’s traditional regional primacy.
How US-China rivalry impacts India’s regional primacy
- Erosion of India’s Traditional Sphere of Influence: China’s BRI and String of Pearls have institutionalised long-term strategic presence. Simultaneously, the US is expanding defence, maritime and digital partnerships with Bangladesh, Sri Lanka and Maldives. Neighbourhood is becoming multi-aligned rather than India-centric. Example: Hambantota Port, CPEC.
- Strategic hedging by neighbouring states: Smaller states increasingly leverage competition between India, China and the US to maximise economic and political gains. Reduces India’s bargaining power and monopoly over regional public goods. Example: Maldives’ balancing diplomacy.
- Maritime security challenges: Chinese naval deployments, dual-use ports and surveillance facilities challenge India’s dominance in the Indian Ocean. Increased US naval presence further internationalises India’s maritime neighbourhood. Example: Djibouti base; Colombo Port City.
- Economic competition: China finances large infrastructure projects while the US promotes alternative supply-chain and connectivity initiatives. India faces pressure to compete in infrastructure delivery rather than diplomatic goodwill. Example: BRI vs IMEC.
- Strategic relevance of Pakistan: China continues deep investments through CPEC. The US maintains engagement owing to counterterrorism and West Asian considerations. Pakistan remains strategically valuable despite internal instability. Example: Gwadar Port.
- Technological competition: Digital infrastructure, AI, cybersecurity and telecom have become new arenas of influence. Competition extends beyond military power into standards and digital governance. Example: Undersea cable projects.
Why a transactional diplomatic approach is viable
- Strengthens Strategic Autonomy: India evaluates partnerships issue-by-issue rather than bloc politics. Consistent with India’s tradition of multi-alignment. Example: Russia oil imports.
- Maximises technology gains: Cooperate with the US on emerging technologies while retaining independent foreign policy. Example: iCET, semiconductor cooperation.
- Functional engagement with China: Border disputes should not eliminate dialogue on climate, BRICS, SCO and trade. Reduces escalation risks while preserving national interests. Example: BRICS cooperation.
- Prevents overdependence: Avoids excessive reliance on either Washington or Beijing. Enhances diplomatic flexibility amid changing global alignments. Example: G20 diplomacy.
- Supports neighbourhood-first policy: India can offer demand-driven development instead of debt-driven projects. Focus on Digital Public Infrastructure, healthcare, energy connectivity and capacity building. Example: UPI linkage with Nepal.
Limitations of a purely transactional approach
- Trust deficit may reduce long-term strategic partnerships.
- China’s structural economic leverage cannot be countered solely through diplomacy.
- US expectations on technology, sanctions and defence interoperability may constrain policy space.
- Neighbouring countries may continue balancing multiple powers irrespective of India’s approach.
Way Forward
- Accelerate delivery under Neighbourhood First, SAGAR and MAHASAGAR initiatives.
- Strengthen BIMSTEC, Colombo Security Conclave and IORA instead of relying on SAARC.
- Expand cross-border energy grids, digital payments, rail connectivity and disaster-resilient infrastructure.
- Build domestic strength in manufacturing, semiconductors, AI and defence under Atmanirbhar Bharat.
- Institutionalise regular political engagement with neighbourhood governments through development partnerships.
Conclusion
Strategic autonomy rests on national capability, not alignment. India must combine regional delivery, economic strength and calibrated diplomacy to remain South Asia’s indispensable stabilising power.
