Impact of disruptions in India

It is highly unlikely that disruption will end in 2026. Economic and geopolitical forecasts predict ongoing instability and fragmentation, not a return to a stable, pre-disruption era. Disruptions are increasingly viewed as a persistent, structural feature of the global landscape, accelerated by rapid changes in technology and international relations.

According to research by the German financial services multinational Allianz, India’s talent pool and demographic advantages, coupled with lower unit labour costs relative to its Asian neighbours, make it an attractive choice for re-shoring operations. Moreover, economic reforms and initiatives by the government to revitalise the manufacturing sector such as the Production Linked Incentive – a scheme that incentivises firms to increase domestic production – will be contributing factors for multinational firms to choose India to be China’s plus one.

War can significantly disrupt India's economy through increased costs from oil price hikes, inflation, and weakened currency, along with supply chain disruptions affecting trade, higher government defense spending, and potential impacts on foreign investment. Direct impacts include disruptions to trade routes, flight cancellations, and potential job losses, particularly in sectors like tourism and aviation.

War can increase GDP in the short term by raising government spending on defence and related industries. This creates more jobs and boosts demand. However, this growth is often not sustainable and can hurt the overall economy in the long run.

FTA disruptions in India have a mixed impact, creating both challenges and opportunities. Negative effects include job losses in sectors that cannot compete with cheaper imports, increased import pressure on farmers, and higher export costs due to unexpected tariff changes. Conversely, opportunities arise from improved market access for some sectors, technology transfer, and increased Foreign Direct Investment (FDI). Recent disruption impacts include contract re-negotiations and cash flow pressures for some Indian exporters, alongside a strategy to diversify exports to other regions.

Tariff disruptions, such as recent US tariffs, have significantly impacted India's export-dependent industries but have been absorbed by strong domestic demand, services exports, and government strategies. While sectors like textiles, gems, and aluminum face challenges, resilient domestic factors and market diversification efforts have cushioned the overall economic effect.

The recent U.S. tariffs on Indian exports marked both a test and a turning point in bilateral relations. Short-term disruptions in steel, aluminum, and textiles revealed structural vulnerabilities, but resilience in pharmaceuticals, agriculture, and IT demonstrated the enduring depth of U.S.-India trade.

More importantly, these trade frictions have catalyzed strategic alignment rather than division. Both nations now perceive trade not merely as an economic exchange but as a pillar of geopolitical partnership. With the U.S. consolidating its Indo-Pacific strategy and India positioning itself as a democratic manufacturing hub, the trajectory ahead is one of cooperative competitiveness—driven by innovation, sustainability, and shared democratic values.

If navigated prudently, the recalibrated trade framework will not only strengthen economic ties but also reinforce the strategic balance of the global order—where India and the United States stand shoulder to shoulder as partners of stability, growth, and technological leadership.

Governance disruptions in India significantly impact economic stability, investor confidence, and social cohesion. These disruptions, which can range from political uncertainty to sudden policy shifts, create an unpredictable environment that hampers development and deepens existing inequalities.

Consequently, each country is looking to push its own domestic industry, through some version of tariffs and industrial policy, while entering into bilateral free trade agreements (FTAs) and joining multilateral trading blocs like the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive Progressive Agreement for Trans-Pacific Par5nership (CPATP).”

The other effect is a slowdown in global trade, and hence slower global GDP growth (at least in the short and medium run). According to the latest International Monetary Fund’s(IMF) World Economic Outlook (WEO), global growth is projected to decline to 2.8 per cent in 2025 and 3 per cent in 2026—down from 3.3 percent for both years in the January 2025 WEO Update, and much below the historical (2000-19) average of 3.7 percent. Since India is integrated with the global economy, this development impacts India’s growth outlook also negatively. For example, the United Nations, in its recently published report has downgraded India’s growth prospect to 6.3 per cent from 6.6 per cent for 2025 at the start of the year.

Despite the various headwinds in the global economy, India has achieved reasonably, if not exceedingly well, in its efforts to attract foreign direct investment (FDI) inflows which reached US$1 trillion since April 2000. MNCs are increasingly looking at a China+1 strategy to derisk their operations from China. This reflects the continued appeal of India as a favourable destination.