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India's stability, market potential, and strategic neutrality have made it the standout choice in a world rattled by trade wars.
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Amid ongoing US-China trade tensions, investors are increasingly turning to India as a safer and more promising destination. An April 2025 Bank of America survey shows 42 percent of Asia-Pacific fund managers are now overweight on Indian equities, versus 39 percent for Japan and 6 percent for China. This shift is attributed to strong domestic demand, infrastructure growth, and India’s gains from global supply chain realignments. While China is beginning to see some recovery in global trade sentiment, India has emerged as the region’s top investment choice in this period of international trade recalibration.
India's macroeconomic and geopolitical environment in mid-2025 highlights both its prospects and challenges. India remains in the global economic spotlight: GDP growth estimates exceed 6 percent for 2025, with inflation hovering around 4 percent—reflecting one of the world’s highest growth rates alongside moderate price pressures. This strong footing is supported by a large domestic market and rising manufacturing investment, driven by government initiatives such as the Production-Linked Incentive (PLI) scheme, which has bolstered enterprise confidence. On the trade front, India has emerged as a leading alternative in global supply chains, attracting multinational companies seeking to diversify away from China.
Multinationals are increasingly using a ‘China-plus-one’ strategy—taking advantage of growing capacity in countries like India to reduce risk—and India’s investor-friendly policies have capitalised on this momentum.
Recent geopolitical flashpoints, however, have added to uncertainty. India-Pakistan tensions escalated in April 2025 following an attack by Pakistan-sponsored terrorists in Kashmir that resulted in 25 Indian civilian casualties, leading to the worst standoff between the two countries in years. Although the crisis is currently contained, it underscores persistent security threats that investors must closely monitor. Simultaneously, US foreign policy has significantly shifted under President Trump's tenure. Washington has adopted a mixed approach: on one side, adopting a conciliatory tone towards Beijing in the recent Geneva trade talks after a tense trade war, while simultaneously reaffirming India’s status as a key economic and strategic partner.
In early 2025, the US and India reached an agreement to negotiate a trade accord and resolve longstanding tariff disputes, with India committing to increase imports of US energy and defence products. As the US-China trade war recedes, India finds itself deepening ties with Western economies.
International trade tensions have put India in the spotlight as an attractive destination for investors. With the US-China tariff war and other protectionist flashpoints shaking up global supply chains, India has emerged as a comparative "hiding place" for investors amidst the chaos. Less directly caught up in US-China tensions, India’s economy has gained from an inflow of diverted capital and enterprise. Multinationals have increasingly adopted a "China-plus-one" strategy – leveraging increasing capacity in countries like India to mitigate geopolitical risks. India’s investor-friendly policies have capitalised on this momentum.
In addition, India’s growth is driven more by domestic consumption than exports, offering a degree of insulation from global trade shocks. While trade tensions have undermined global investor confidence, they have also prompted an investment repricing that has reinforced India’s growth narrative. That said, India is not immune to international trade frictions – higher input costs from disrupted supply chains or a global growth slowdown could still pose challenges. On balance, though, India’s investment environment has benefited from global trade tensions—India is perceived as an unaligned, dependable choice in Asia, which can be relied upon when great-power trade winds become turbulent.
A key question is whether India can continue reaping benefits from the ongoing supply chain shifts, or if China is poised to reclaim lost ground as Beijing and Washington resume negotiations. India has indeed been a major beneficiary of the global “decoupling” trend: companies across sectors—from electronics to textiles—have ramped up operations in India to reduce their over-reliance on China. With a vast labour force, improving infrastructure, and supportive industrial policy, India is well-positioned to capture a substantial share of rerouted supply chains. Even as US-China trade talks make headway—as seen in the partial tariff truce reached at the May 8 Geneva meeting—and investor sentiment towards China begins to soften, the consensus remains that this supply-chain realignment is structural rather than cyclical.
India’s outlook is positive but measured, and astute investors will watch global developments closely as they invest in India’s growth story.
Many corporations remain committed to their India strategy despite the US-China thaw, continuing to bet on India’s logistics strengths and strong market potential. That said, China may be regaining some traction at the margin - the same survey saw China’s ranking climb from last to third, with analysts sharing the opinion that a lasting US-China deal could tempt some capital back into Chinese markets. If tariff barriers continue to ease and China’s economy stabilises, India might not witness as rapid an inflow of new supply-chain investments as it did during the peak of the trade war.
Furthermore, India must address its competitive challenges—such as high logistics costs—to fully capitalise on this moment. Firms weigh factors such as shipping efficiency and regulatory ease: without continued improvements in infrastructure and reductions in bureaucratic red tape, competitors like Vietnam and Malaysia stand to gain a larger share of the “China+1” business. While India has gained substantially from the reordering of Asian supply chains, sustaining that advantage will require continued reforms and a clear-eyed recognition that China’s appeal has not entirely waned.
The recent flare-up along the Pakistan border was a déjà vu moment. In earlier decades, an incident such as this might have triggered panic among investors and a sharp market sell-off. This time, however, the tensions, while concerning, had only a limited and short-lived impact on foreign investor sentiment. Markets wavered briefly as headlines reported cross-border fire, but largely reflected confidence that the conflict would remain contained.
Washington has taken a mixed tack—on the one hand, adopting a conciliatory tone toward Beijing in recent Geneva trade talks, while on the other, actively positioning India as an economic and strategic partner.
India's economic fundamentals cushion it against such external shocks—strong growth, large forex reserves, and a diversified economy make it more robust than many emerging peers. Even during recent episodes of global banking turbulence and inflationary spikes, Indian equities and the rupee remained steadier than expected, supported by India's domestic growth engine and sound monetary management. That said, investors remain aware of India’s exposure to global vulnerabilities. As an oil-importing economy, for example, India is sensitive to energy price fluctuations. Additionally, any sudden shifts in US interest rates or global risk appetite can affect capital flows into and out of Indian markets.
Internal challenges also persist. Elevated stock valuations and uneven corporate earnings could spark volatility if expectations are not met.. Moreover, the actual pace of India's reforms and the stability of its political landscape remain important to keep an eye on.. Finally, while India's economic outlook is positive, it is also tempered. Astute investors will continue to monitor both domestic developments and shifting global dynamics as they invest in India's growth story.
Soumya Bhowmick is a Fellow and Lead, World Economies and Sustainability at the Centre for New Economic Diplomacy (CNED) at the Observer Research Foundation.
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Soumya Bhowmick is a Fellow and Lead, World Economies and Sustainability at the Centre for New Economic Diplomacy (CNED) at Observer Research Foundation (ORF). He ...
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