How India is derisking itself from US bullying and pressure
Despite all the focus on US trade tariffs, what is being missed is the slow and deliberate recrafting of India’s (still evolving) geopolitical strategy one trick at a time. Some of these moves predated the arrival of Donald Trump to the White House, but his entry has speeded up things.
While the Narendra Modi government has attracted a lot of criticism for the seemingly pusillanimous way in which it is handling the crisis in India-US relationship, it is now possible to discern the faint outlines of a new template for foreign and trade policy.
Not surprisingly, the central element of this new template is derisking the relationship with the US, but it is also clear that we are derisking our over-dependence on Russia as well, though domestic critics may claim that this is coming under US pressure.
The tell-tale signs have been there for quite some time, both before the Ukraine conflict began in February 2022, and later, as Donald Trump showed how capricious he can be with friends and foes alike. Our new strategy is meant to secure India’s interests in a multi-polar and transactional world.
The signals we must note are the following:
One, India has been reducing its share of US treasury holdings steadily, with holdings falling from over $241 bn in October 2024 to $190 bn in October 2025. This does not mean that our dollar reserves are falling dramatically, just that the money lent to Uncle Sam directly is significantly down. According to the latest RBI fortnightly foreign exchange report (2 January 2026), $551 bn of our total $686 bn forex reserves are in dollars - which is not a small amount. It is only the vulnerability to US treasury stocks that has been reduced.
Two, the biggest increase in forex assets is in gold, where we currently hold 880 tonnes (as of September 2025). Gold makes up 16 percent of our reserves due to the rise in the metal’s prices. But, significantly, we have also been steadily moving our gold to our own vaults in India. As much of 575 tonnes of the 880 tonnes is in the RBI’s own vaults. Clearly, we are making sure that if the US or Europe ever seek to sequester our reserves due to any geopolitical disagreement, we are not left high and dry. Confidence in the US and western financial system has declined worldwide, and India is not an exception to it.
Three, the flurry of trade deals with Australia, New Zealand, UAE, UK, Oman and EFTA (European Free Trade Area, of which Switzerland is the main player) may be crowned by a mega deal with the European Union, possibly before the end of this fiscal year. Both the EU Commission president, Ursula von der Leyen, and European Council president, Antonio Costa, will be present in New Delhi as guests of honour for Republic Day.
Four, the proposed EU trade deal is being buttressed with other non-trade related deals. Given the complexity of the EU trade negotiations, it may be premature to assume that a deal will happen quickly merely because both the EU and India need one another in the wake of Trump’s disruptive tariff moves. arrival. EU votes are weighted in favour of countries with large populations, which means France, Germany, Italy, Spain and Poland are key to determining the outcome. It is not a coincidence that India seems likely to sign a massive Rs 3.25 lakh crore ($36 bn) Rafale deal with France, and a $8 bn submarine upgrade deal with Germany. A week ago, India’s external affairs minister, S Jaishankar, joined France, Germany and Poland for the Weimar talks in Paris, where both the EU trade deal and the Ukraine conflict came up for discussion.
Five, the fact that the Rafale deal is closer to fruition than Russia’s counter offer on the Su-57 stealth fighter (with transfer of technology) suggests that India does not want to become overdependent on Russia either. The India-Russia relationship will probably continue to grow, but at a slower pace than before, not least because India realises that Russia’s ability to honour its promises depend on the conclusion of the Ukraine war. Without that, Russian defence production will remain overly committed to its own war needs. On the other hand, Hindustan Aeronautics has signed up with Russia’s UAC for the domestic production of its SJ-100 civilian aircraft, which may be useful for short-haul domestic routes. It is not clear whether this venture can be commercially viable, especially given the Russian’s company’s lack of a widely-acknowledged global footprint, but it is indicative of India’s effort to look beyond Boeing and Airbus for sourcing planes for its fast-expanding aviation market. Once the war ends, the India-Russia partnership can grow again, this time in areas beyond oil and defence.
Six, in line with the effort to derisk from the US, the Adani group signed up with the Brazilian civilian aircraft company Embraer for domestic assembly of narrow body aircraft for short-haul routes. Clearly, India has ambitions not just in defence, but in civil aviation as well, and it does not want Boeing or Airbus to be in a position to call all the shots.
Seven, India’s economic and military partnership with Japan will continue to grow as both countries seek to build a counterbalancing geopolitical force to China.
Eight, as far as China itself is concerned, the challenges for India are domestic, thanks to the slow pace of reform and broader inability to compete on price and quality. We are over-dependent on Chinese imports to feed both the domestic market and exports in areas like electronics and pharmaceutical ingredients. Thousands of jobs in retail and exports depend on Chinese imports. In 2025, our trade deficit is expected to top $106 bn with China, partly because India’s own exports of electronic goods (including Apple’s iPhones) depend on Chinese components and sub-assemblies. In 2025, India’s electronics exports topped Rs 4 lakh crore, aided by production-linked incentives. But Chinese investments in supply chains in India are low or non-existent, both because of India’s security issues with Chinese high-tech components, and Chinese wariness about allowing their supply chains to aid India’s rising export ambitions. India’s economic challenge is to balance security concerns with economic ones.
While India is still feeling its way around on how to address the Chinese challenge, both on the border and in trade, its strategy of derisking from over-dependence on any one market or one source of technology (for defence of civilian uses) is now apparent.
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