- India suffered a historic military setback against Pakistan.
- New Delhi has failed to reach a trade deal with Washington.
- The Indian rupee touched an all-time low of 91.14 against the US dollar.
The past year has proven to be a “year of crisis” for India, marked by a historic military setback against Pakistan, a weakened currency and growing economic uncertainty. The Financial Times reported in its 2025 annual report.
Due to the failure of its strategic autonomy, India was forced to maintain relations with the United States, China and Russia simultaneously, the report read.
The report adds that the US-India trade deal has been repeatedly postponed, while the imposition of US tariffs has put additional economic pressure on New Delhi.
Similarly, limited implementation of GST reforms has also hampered economic growth. It further said that the Indian rupee continued to depreciate against the US dollar in 2025.
Operation Sindoor backfired as Trump mocked
Earlier this year, Pakistan and India engaged in a military confrontation, the worst between the old enemies in decades, sparked by an attack on tourists in the IIOJK’s Pahalgam region, which New Delhi said was backed by Pakistan.
Islamabad has denied any involvement in the Pahalgam attack, which killed 26 men, and has offered to participate in a neutral investigation into the deadly incident.
During the clashes, Pakistan shot down seven Indian fighter jets, including three Rafale, and dozens of drones. After at least 87 hours, the war between the two nuclear-armed nations ended on May 10 with a U.S.-brokered ceasefire agreement.
Pakistan’s historic victory in the four-day skirmishes played an important role in bringing Islamabad and Washington closer together.
In the months since the ceasefire, US President Donald Trump has taunted India over its growing friendship with Pakistan Defense Forces (CDF) chief and Chief of Army Staff Field Marshal Asim Munir.
US-India trade agreement
Few things have attracted as much ink as the U.S.-India trade deal, which never happened. Initially, after Trump’s election victory, there was a lot of joy in New Delhi about having a friendly administration in the White House.
In February, Modi was one of the first foreign leaders to visit Washington. It then seemed that India would also be one of the first countries to sign a trade deal with Trump.
An agreement was expected in May, then in June, then in July. . . then the talks began to stall.
In August, Trump’s reciprocal tariffs took effect, and by the end of the month he had announced additional 25 percent tariffs to punish India for buying Russian oil.
Commerce Secretary Rajesh Agarwal said the two countries could reasonably be expected to reach an agreement on lower reciprocal tariffs and that India was “positively engaged” with the United States on the deal.
Trump and Modi have spoken over the past fortnight, and both sides have issued warm and fuzzy statements.
In August, when it looked like a trade deal with the United States was not going to be a success, the Modi government decided it was time to focus on domestic growth.
The Indian rupee, which is in decline, has taken a major hit this year. It lost 6% in 2025, hitting an all-time low of 91.14 against the US dollar.
Ties with China and Bangladesh
Ties between New Delhi and Dhaka have deteriorated since deposed Prime Minister Sheikh Hasina fled the pro-democracy uprising and sought refuge in India.
On the other hand, India has failed to improve its ties with China despite recalibrating its foreign policy.
Prime Minister Narendra Modi visited China for the first time in seven years and met President Xi Jinping. The two countries reaffirmed their commitment to “cooperation based on mutual respect, mutual interest and mutual sensitivity”.
However, both sides are still suspicious of each other.
India accuses China of providing support to Pakistan during the recent four-day war.
