- India suffered historic military setback against Pakistan.
- New Delhi failed to enter into a trade agreement with Washington.
- The Indian rupee hit a record low of 91.14 against the US dollar.
The past year turned out to be a “year of crisis” for India, marked by a historic military setback against Pakistan, a weakening currency and growing economic uncertainty, Financial Times reported in its 2025 annual review.
Due to failed strategic autonomy, India was forced to simultaneously maintain relations with the United States (US), China and Russia, the report read.
The report adds that the US-India trade deal was postponed several times, while the imposition of US tariffs put additional economic pressure on New Delhi.
Similarly, the limited implementation of GST reforms also hindered economic growth. It further said that the Indian rupee continued to depreciate against the US dollar during 2025.
Operation Sindoor backfired as Trump scoffed
Earlier this year, Pakistan and India engaged in a military standoff, the worst between the old enemies in decades, which was sparked by an attack on tourists in the IIOJK’s Pahalgam area, which New Delhi claimed was supported by Pakistan.
Islamabad denied any involvement in the Pahalgam attack, which killed 26 men, and offered to participate in a neutral inquiry into the deadly incident.
During the clashes, Pakistan shot down seven Indian fighter jets, including three Rafales, and dozens of drones. After at least 87 hours, the war between the two nuclear-armed nations ended on May 10 with a cease-fire agreement brokered by the United States.
Pakistan’s historic victory in the four-day clashes played a significant role in bringing Islamabad and Washington closer.
In the months since the ceasefire, US President Donald Trump has taunted India through his growing friendship with Pakistan’s Chief of Defense Staff (CDF) and Chief of Army Staff Field Marshal Asim Munir.
US-India trade agreement
Few things have attracted more ink than the US-India trade deal that never happened. In the beginning, after Trump’s election victory, there was great jubilation in New Delhi to have a friendly administration in the White House.
In February, Modi was one of the first foreign leaders to visit Washington. It looked like India would also be one of the first countries to sign a trade deal with Trump.
A deal was expected in May, then June and then July. . . and then the conversations began to stall.
In August, Trump’s reciprocal tariffs started, and by the end of the month he had announced an additional 25% tariff to punish India for buying Russian oil.
Commerce Minister Rajesh Agarwal said there was a reasonable expectation that both countries would be able to agree on a lower reciprocal tariff and that India was “positively engaged” with the US on the deal.
Trump and Modi have been talking to each other for the past fortnight, with both sides making heated, fuzzy statements.
In August, when it began to look like a trade deal with the US would not be a shot in the arm, the Modi government decided it was time to focus on domestic growth.
The Indian rupee, which has been on a downward slide, took a beating this year. It lost 6% in 2025 and hit a record low of 91.14 against the US dollar.
Relations with China and Bangladesh
Relations between New Delhi and Dhaka have soured since ousted 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 traveled to 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 parties are still wary of each other.
India accuses China of providing support to Pakistan during the recent four-day war.
