Key Takeaways:
August’s Security of Supply Arrangement between India and the U.S. highlights India's leadership in South Asia and the Indo-Pacific, countering China while establishing India as a credible alternative market.
India's economic partnership with Russia not only bolsters its own economic growth but also limits closer Sino-Russian ties by providing Russia with a strategic market alternative.
As India continues to counterbalance China, South Asia (specifically India) is becoming an increasingly attractive market for foreign investment, especially in sectors such as energy, defence, manufacturing, and technology. KSG expects this to continue.
The State of Sino-Indian Tension
As India seeks to expand its influence in South Asia and establish itself as a key player in global politics and geoeconomics, it faces China as a direct rival, countering Indian influence both regionally and globally.
With the global renewable energy market expanding significantly, KSG assesses that India is likely to capitalise on its renewable energy resources, like minerals, to enter the energy trade market, especially through initiatives such as their National Green Hydrogen Mission. This will further reinforce trade agreements, such as the 2022 India-UAE Comprehensive Economic Partnership (CEP), as the UAE seeks to transition away from fossil fuels.
In the energy sector, India is establishing a leadership role for itself through initiatives like the International Solar Alliance (ISA), aiming to enhance its influence in the Global South. This is likely to strengthen India’s relations with resource-rich Global South countries that are part of the ISA, setting India up as a viable alternative to China for trade in renewable energy resources, textiles, machinery and agricultural products. Through partnerships forged by the ISA, India’s export of Chinese energy components like PV cells could also be diversified to other supply chains. India’s leadership through the ISA is also likely to steer the development goals of these countries to be aligned with India’s strategic interests, further improving multilateral relations.
In addition to this contestation for regional and global influence, China and India also contest one another through border disputes. However, recent diplomatic efforts have seen a reduction in tensions. On the 29th of August 2024, the Joint Secretary from the Ministry of External Affairs for India, led a delegation to Beijing to discuss India-China border affairs. Both the Indian and Chinese delegations agreed to “jointly uphold peace and tranquillity in border areas,” adhering to bilateral agreements and respecting the Line of Actual Control (LAC), which were deemed essential for the “restoration of normalcy in bilateral relations.”
KSG assesses that this reduction in tension is likely to hold over the coming 5 years, given India's increasing strategic alliances with Russia and the U.S. will strengthen India’s geopolitical position, enhance the deterrence of Chinese aggression, and incentivise China to avoid causing disputes with India to protect Sino-Russian trade relations. KSG also assesses that India-Pakistan tensions are also likely to reduce further in the coming 5 years given the quadrilateral dependencies between the four countries mentioned. KSG thus assesses that these factors will create a stable environment for investment, trade, and economic development in South Asia.
India-Russia Relations and their Effects on China
India’s bilateral relationships with Russia and the U.S. are pivotal in countering Chinese influence in South Asia, the Global South, and on the world stage.
Trade between Russia and India serves as a check on China by providing Russia with an alternative market for crude oil, coal, pharmaceuticals and defence exports, thereby preventing closer Sino-Russian ties and deepening Russian dependencies.
In July 2024, at the 22nd Annual India-Russia summit, both nations reaffirmed their commitment to strengthening bilateral ties, including trade. A key outcome from the summit was an agreement to increase Indian exports to Russia while India would continue to import Russian crude oil, to balance the current asymmetric trade relationship. Additionally, bilateral trade targets are set at $100 billion by 2030, positioning the India-Russian economic partnership to expand.
Russia, however, is reliant on Chinese export and import markets for resources and raw materials, and India is also still itself dependent on China for the import of PV cells, circuit boards and batteries which lowers India’s current ability to be an equally strong choice for energy trade currently, despite its relative political stability and liberally oriented trade market.
US-India Relations and their Effects on China
The U.S. and India enjoy robust bilateral ties that aid India in counterbalancing China, particularly in the South Asian and Indo-Pacific regions. Strengthened relations with the U.S. position India as a viable alternative market for Western allies, especially in pharmaceuticals, agriculture, and technology. With its booming tech industry– evident in innovations like AI voice bots from startups– and an expanding manufacturing sector, including affordable solar panels produced by Tata Power and Adani Solar, India offers a compelling option for U.S. allies seeking to reduce their reliance on China for energy and technology.
Strong U.S.-India relations promote Indian expansion in South Asia without directly provoking China. For example, although Nepal signed China’s Belt and Road Initiative in 2017, progress has stalled. Recent US-Nepal and India-Nepal meetings emphasised energy cooperation and foreign aid. This U.S.-India presence in Nepal serves as a direct challenge to Chinese influence, potentially prompting countries like Bangladesh and Sri Lanka to realign with India. The U.S.’ National Security Strategy for 2022, highlighted the cruciality of their alliances with India and other Quad members, in their long-term strategy to “outcompete” U.S. rivals, specifically China, in both South Asia and the Indo-Pacific.
Looking Forward:
As Russian ties with both China and India are likely to deepen, KSG assesses that South Asia will experience greater regional security, driven by the bipolarity shared by India and China. If either were to gain superiority in South Asia, especially militarily, this would likely result in regional instability due to heightened tensions and border insecurity, which could be detrimental to economic development and foreign investment opportunities.
KSG assesses that U.S.-India relations will continue to strengthen, bolstering the Indian economy, and will also attract increased foreign investment while simultaneously curbing Chinese expansionism. As the Belt and Road Initiative in the Indo-Pacific and neighbouring countries like Nepal, Sri Lanka, and Bangladesh remains stalled, a domino effect similar to the strategic U.S.-India engagement and investment in Nepal is likely to follow across the region.
KSG assesses that India’s focus on digital infrastructure, cybersecurity, and innovation will attract significant foreign investment and reinforce India's strategic importance amid rising geopolitical tensions. For example, investing in India would allow tech giants like Apple, Google, and Microsoft to diversify from China and capitalise on India’s growing tech market. Apple can cut costs and expand its market, while Google and Microsoft can tap into India’s vast internet base and rising demand for cloud and AI services.
KSG assesses that India is well-positioned to become a key partner for the EU and the UK, offering a stable and strategic counterbalance to China. This follows KSG’s earlier assessment that the EU is preparing for a potential trade conflict with China, which is likely to lead to closer EU-UK ties.
KSG assesses that Russia-India bilateral relations will continue to deepen, driven by India’s strategic objective to counter China. This partnership will likely prevent Russia from growing extremely dependent on China, while also mitigating Russian economic isolation in the short to medium term. This will likely enable Moscow to resist Western pressure stemming from the 2022 Ukraine War, and still deploy considerable capability into Ukraine in the coming years.
Increasing U.S.-Russia tensions could pressure India to choose sides, risking strain on its relationships and therefore its leadership potential in South Asia. However, KSG assesses that India will continue to successfully balance its ties with both the U.S. and Russia over the next 5 years, in line with its non-alignment strategy. This would enable India to continue to benefit from Russian trade while maintaining a strong military and economic partnership with the U.S.
The quadrilateral relationship between Russia-India-China-U.S. also has implications in the Middle East, particularly for the UAE. KSG assesses that India-UAE relations are also likely to grow, as the 2022 UAE-India Comprehensive Economic Partnership (CEP) strengthens trade ties. The UAE's efforts to diversify away from fossil fuels and invest in renewable energy create opportunities for deeper collaboration with India. Additionally, as the UAE seeks to avoid over-dependence on any single power—whether it be the U.S., China, Russia or India—it will likely pursue balanced trade relations with all four. This dynamic is expected to bolster both India and China’s economy, contributing to regional stability, and create a network of economic coupling that deters aggression.