India’s economic position in 2026 rests on a balancing act that is becoming increasingly difficult to sustain, largely due to the intensifying China-US trade and military competition.
While India has positioned itself as an alternative manufacturing and investment destination, the China-plus-one advantage is far from delivering significant economic benefits in the near term.
The challenge New Delhi currently faces is not a lack of investment but its overreliance on Chinese imports, particularly electronic components, active pharmaceutical ingredients (APIs) and industrial inputs.
This means any continuation of the US-China rupture could disrupt Indian supply chains, even as it creates opportunities elsewhere. The core concern for the Indian economy remains not just China but also its heavy dependence on imported oil to sustain economic activity.
The recent surge in oil prices has increased the import bill, forcing the government to raise domestic fuel prices to help oil marketing companies remain viable in a volatile market.
India remains one of the world’s largest oil importers, and its continued purchase of discounted Russian crude has helped keep inflation manageable. However, it has also led to recurring friction with Washington, including tariff threats linked to India’s ties with Russia.
While these two factors are directly linked to the country’s overall economic prosperity, the larger concern is the possibility of escalating US-Russia tensions in the near future.
India could become a target of US secondary sanctions, which could be as high as 100 per cent if New Delhi continues purchasing oil from Russia.
India-Russia trade
Total imports from Russia stood at $67.15 billion in 2024 and rose further to $32.7 billion in the first half of 2025. Imports grew by 52 per cent year-on-year in the first quarter of FY 2026-27 (April-June 2026).
Crude oil overwhelmingly dominates bilateral trade, accounting for $52.73 billion in imports in 2024. In FY 2025-26, India imported $47.8 billion worth of Russian crude, representing roughly 86 per cent of all imports from Russia.
Other import categories are comparatively small: fertilisers ($1.61 billion), edible oils ($2.25 billion), and iron and steel ($423 million).
India’s exports to Russia are much smaller and more diversified, amounting to $4.84 billion in 2024 and consisting mainly of machinery, pharmaceuticals, electronics and organic chemicals.
The imbalance is stark: India buys roughly 14 times more from Russia than it sells there, making the relationship overwhelmingly dependent on a single commodity — oil.
India-China trade
Imports from China reached $113.5 billion in FY 2024-25, up 11.5 per cent year-on-year. India’s exports to China fell to just $14.25 billion during the same period.
As a result, the trade deficit widened to a record $99.2 billion, more than double the $44 billion recorded in FY 2020-21.
Electronics dominate India’s imports from China, with electrical and electronic equipment alone accounting for $47.67 billion in 2024. These imports include integrated circuits, telecommunications equipment, semiconductors, machinery, EV batteries, solar cells and pharmaceutical ingredients.
China is India’s largest supplier across all eight major industrial product categories, indicating not sector-specific dependence but a broader structural reliance.
India’s exports to China, meanwhile, remain concentrated in low-value-added products such as iron ore, cotton, copper and shrimp — largely raw materials rather than finished or high-technology goods.
US President Donald Trump has already warned of secondary sanctions on countries continuing trade with Russia over President Vladimir Putin’s ongoing military campaign in Ukraine.
Any hostile move from Washington could fuel inflation in India and have far-reaching consequences, potentially dealing a serious blow to an economy that has continued to grow despite global tensions.
The government will need to calibrate its position carefully. If New Delhi chooses to remain aligned with Russia, it could face significant diplomatic, political and geo-economic consequences.
However, if it decides to move closer to Washington — which appears to be the direction of current policy thinking — it will need to prepare for inflationary pressures and adopt cost-cutting measures to keep the economy attractive for both investors and consumers.
Meanwhile, India’s ambition to maintain a neutral, multi-aligned foreign policy — balancing relations with the US, Russia and China simultaneously — is becoming increasingly difficult as global divisions deepen.
The current challenges also present opportunities. However, capitalising on them will require flexibility in an increasingly polarised world where the margin for error is rapidly shrinking.
By Waseem Ahmad Ganie
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