The Sanctions Domino Effect: Tracing the Ripple Effects Across the Indian Economy

Sanctions on the Horizon: Which Indian Sectors Are Most Exposed?

1. The Modern Architecture of Economic Coercion

Chapter Highlights:

Evolution of Sanctions: Modern sanctions have shifted from broad country-wide embargoes to targeted "smart sanctions" that focus on specific individuals, entities, or sectors.

Extraterritorial Reach: The use of secondary sanctions, particularly by the U.S., penalizes third-party actors (like Indian firms) for dealing with a sanctioned entity, forcing a choice between market access and strategic partnerships.

Key Global Actors: While the UN has the legal mandate, the U.S. Treasury's Office of Foreign Assets Control (OFAC) is the most powerful sanctioning body, leveraging the dominance of the U.S. dollar to enforce its regulations globally.

The 21st-century global landscape is increasingly defined by the use of economic statecraft as a primary tool of foreign policy. For a rapidly integrating economy like India, understanding the sophisticated architecture of modern economic sanctions is no longer a niche academic exercise but a core component of strategic risk assessment. These measures, far from being a blunt instrument, have evolved into a precise and powerful toolkit for projecting influence, compelling policy changes, and enforcing international norms. This chapter deconstructs the mechanics of contemporary sanctions, establishing the foundational concepts necessary to analyze their potential impact on India's diverse economic sectors.

1.1 Defining the Toolkit: From Comprehensive Embargoes to Targeted "Smart" Sanctions

Economic sanctions are formally defined as "the deliberate, government-inspired withdrawal, or threat of withdrawal, of customary trade or financial relations".¹ They occupy a critical space in the foreign policy continuum, offering a response more forceful than diplomacy alone but less severe than military action.¹ The post-9/11 era, in particular, has witnessed a dramatic escalation in their application.

Between 2000 and 2021, the use of sanctions surged by over 933%, transforming them from a tool of last resort into a "tool of first resort" for addressing a range of national security and foreign policy goals, including counter-terrorism, non-proliferation, and the promotion of human rights.¹

This proliferation has been accompanied by a significant evolution in methodology. The traditional model of comprehensive sanctions, which sought to halt all economic relations with a target country, has largely been supplanted by a more surgical approach known as "smart sanctions".³ These targeted measures—which include asset freezes, travel bans, arms embargoes, and restrictions on specific financial transactions—are designed to exert maximum pressure on specific individuals, entities, or sectors responsible for proscribed behavior, while theoretically minimizing collateral damage to innocent civilian populations and neighboring economies.³

This evolution from broad to targeted coercion represents a fundamental paradigm shift in how sanction risk is transmitted. For a nation like India, vulnerability is no longer a binary state of being either sanctioned or not. Instead, it has become a complex spectrum of risk that permeates the entire economy. An Indian corporation could find itself inadvertently in violation of a sanctions regime due to a seemingly minor connection, such as having a sanctioned individual on its board of directors, engaging a subsidiary of a targeted entity, or participating in a joint venture with a sanctioned firm. This granular nature of modern sanctions creates a pervasive and intricate compliance burden, demanding a level of due diligence that extends far beyond direct trade relationships into the very structure of corporate ownership and finance.

1.2 Primary vs. Secondary Sanctions: Understanding Direct and Extraterritorial Reach

The potency of modern sanctions regimes, particularly those enacted by the United States, is amplified by the distinction between primary and secondary sanctions. Primary sanctions are straightforward in their application; they prohibit individuals and entities within the sanctioning country's jurisdiction (e.g., "U.S. persons") from engaging in direct transactions with a targeted foreign country, group, or individual.¹

Secondary sanctions, however, are a far more powerful and controversial tool of economic statecraft. They extend the reach of a sanctioning country's laws beyond its own borders by penalizing third-party actors—such as Indian companies or banks—for engaging in activities with the primary sanctions target.¹ For example, under a secondary sanctions regime, the U.S. Treasury could prohibit an Indian financial institution from accessing the U.S. financial system if it is found to be processing significant transactions on behalf of a sanctioned Russian entity.⁵ This extraterritorial application effectively forces non-U.S. entities to choose between conducting business with the sanctioned party and maintaining access to the U.S. dollar-denominated global financial system.

This mechanism is the principal channel through which geopolitical risk is transmitted to the Indian economy. India's long-standing foreign policy of "strategic autonomy"—which entails maintaining constructive relationships with a diverse array of global partners, including those under Western sanctions like Russia and Iran—is in direct and frequent conflict with the logic of secondary sanctions. This tension is not merely theoretical. The imposition of punitive tariffs by the United States on Indian goods in response to India's continued purchase of Russian crude oil serves as a stark, real-world example of this conflict in action.⁶ Consequently, Indian policymakers and corporate leaders are consistently faced with a fundamental strategic dilemma: forgo potentially lucrative commercial opportunities with sanctioned nations or risk being severed from the dominant financial and technological ecosystems of the West.

1.3 The Key Arbiters: The Roles of the UN, United States (OFAC), and the European Union

While numerous bodies can impose sanctions, the global landscape is dominated by three principal authorities. The United Nations Security Council is the only entity with a legal mandate under international law to apply sanctions that must be complied with by all UN member states.⁹ However, its actions are often constrained by the political dynamics of its permanent members, and its use has been relatively selective, with only 31 sanctions regimes established since 1966.¹

In practice, the most influential and active sanctioning body is the U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC). OFAC administers and enforces a wide array of U.S. economic and trade sanctions programs, leveraging the global dominance of the U.S. dollar and the centrality of the U.S. financial system to project power globally.¹ The centerpiece of OFAC's power is the

Specially Designated Nationals and Blocked Persons (SDN) List. For any international entity, inclusion on the SDN list is tantamount to an economic death sentence, as it blocks all of the entity's U.S.-based assets and generally prohibits U.S. persons from dealing with them.¹ This effectively severs the entity's access to U.S. dollar clearing, most international banking services, and a vast network of multinational partners who cannot risk non-compliance.

The European Union represents the third major pillar of the global sanctions architecture. EU sanctions, adopted unanimously by the Council, are legally binding on all member states and often serve to complement or reinforce measures taken by the UN or the United States.¹³

While UN sanctions carry the weight of international law, the true locus of power in the modern sanctions landscape resides with the United States. The unparalleled reach of OFAC means that the most significant and immediate sanction risk for the Indian economy emanates not from multilateral bodies, but from unilateral U.S. actions and the potent threat of its secondary sanctions. Therefore, any robust analysis of India's vulnerability must focus primarily on the regulations, enforcement actions, and foreign policy objectives originating from Washington, D.C.

2. India's Economic Blueprint and Global Integration (FY 2024-25)

Chapter Highlights:

Services Sector Dominance: The Services sector is the primary engine of India's economy, contributing over 54% to Gross Value Added (GVA).¹⁴

GDP-Employment Mismatch: A critical vulnerability arises from the fact that the Primary (Agriculture) Sector employs over 40% of the workforce but contributes only 17% to GVA, making it a point of high social and political sensitivity.¹⁴

Dual Dependency: India faces a strategic pincer movement of vulnerability: its supply chain for goods is heavily dependent on China, while its supply of capital (FDI, ECBs) is dependent on the West.

To accurately assess the potential impact of international sanctions, it is essential to first establish a detailed macroeconomic profile of the Indian economy. This chapter provides the necessary context by painting a data-driven picture of the nation's economic structure, its critical dependencies on external trade and capital, and the specific contours of its global integration. This blueprint reveals the primary channels through which the shock of a sanction could be transmitted and amplified.

2.1 A Profile of the Indian Economy: Sectoral Contributions to Gross Value Added (GVA)

The contemporary Indian economy is characterized by the clear dominance of its Tertiary, or Services, Sector. In fiscal year (FY) 2024-25, this sector—encompassing a wide range of activities from IT and financial services to trade and hospitality—is the primary engine of economic growth, contributing over 54% to the nation's Gross Value Added (GVA).¹⁴ Projections indicate its share will hold steady at approximately 55% for the fiscal year.¹⁷ The

Secondary, or Industry, Sector, which includes manufacturing, construction, and utilities, contributes roughly 25-28% to GVA, while the Primary Sector, comprising agriculture and allied activities, accounts for the remaining 17%.¹⁴

This GVA composition, however, stands in stark contrast to the structure of employment. The Primary Sector, despite its smaller contribution to economic output, remains the nation's largest employer, providing livelihoods for over 40% of the workforce.¹⁴ The Services sector, by comparison, employs a smaller share of the labor force, estimated at between 30% and 34%.¹⁴

This structural imbalance creates what can be termed a "GDP-Employment Mismatch," a critical duality that defines India's sanction vulnerability. On one hand, sanctions targeting high-value, capital-intensive sectors like IT, financial services, or pharmaceuticals would have an outsized and immediate impact on India's GDP, foreign exchange earnings, and stock market valuations. On the other hand, sanctions affecting the labor-intensive Primary Sector—for instance, through restrictions on fertilizer imports or agricultural trade—would have a disproportionately severe social and political impact. Such measures could threaten the livelihoods of hundreds of millions of people, potentially triggering widespread rural distress and social instability. This forces a complex trade-off for any government response, which must balance the imperative of protecting high-growth economic engines with the necessity of ensuring social and political stability for the majority of its population. A comprehensive vulnerability assessment, therefore, cannot be limited to an analysis of GDP contribution alone; it must also weigh the profound socio-political ramifications concentrated in the nation's agricultural heartland.

2.2 Mapping External Lifelines: Trade, Capital, and Technology Dependencies

India's economy is deeply interwoven with global markets through extensive trade, capital, and technology flows. In FY 2024-25, India's total trade in goods and services is substantial, with exports projected to reach approximately $825 billion and imports around $915 billion.¹⁴ The

United States stands as India's largest overall trading partner, followed by China, the United Arab Emirates, and Russia.²⁰ The trade relationship with China is particularly notable for its significant imbalance, with India running a merchandise trade deficit estimated between

$85 billion and $99 billion.²² In contrast, India maintains a healthy trade surplus with the United States.²⁰

Beyond trade, foreign capital is a vital lifeline. Foreign Direct Investment (FDI) inflows have remained robust, reaching a provisional $81 billion in FY 2024-25.²⁴ The primary sources of this equity are Singapore, Mauritius, and the United States, with the Services and Computer Software & Hardware sectors being the largest recipients.¹⁷ In addition to equity, Indian corporations rely heavily on foreign debt through External Commercial Borrowings (ECBs), with the total outstanding amount recorded at

$190.4 billion as of September 2024.²⁶

This detailed mapping of external flows reveals a complex web of interdependencies that creates multiple, distinct channels for sanction risk. The large and persistent trade deficit with China points to a critical import dependency, particularly for industrial and manufacturing inputs, which will be analyzed in detail in the subsequent chapter. Simultaneously, the heavy reliance on FDI and ECBs—which are largely sourced from or cleared through Western-aligned financial hubs like Singapore, the US, and Mauritius—makes India's capital account acutely vulnerable to financial sanctions. A sanctioning entity, such as the United States, could disrupt these capital flows by placing restrictions on investment or access to debt markets. Such an action would choke off funding for key growth sectors, increase the cost of capital for Indian corporations, and exert significant pressure on the nation's balance of payments. This exposes a strategic pincer movement of vulnerability: India's supply chain for goods is heavily dependent on China, while its supply of capital is dependent on the West.

Table 2.1: India's Economic Interdependencies Dashboard (FY 2024-25)

Metric	Value (USD Billion)	Top 3 Partners/Sources (% Share)	Key Vulnerability
Merchandise Exports	437.4	1. USA (17.7%) 2. UAE (8.2%) 3. Netherlands (5.1%) ²⁰	Market access concentration; tariffs in key markets like the US.
Merchandise Imports	720.2	1. China (15.1%) 2. Russia (9.1%) 3. UAE (7.1%) ²⁰	Critical import dependency on China for industrial inputs.
Trade Balance	-282.8	N/A	High deficit makes the economy vulnerable to import price shocks and supply disruptions.
Services Exports	387.5	USA, Europe (Specific % not available, but are key markets) ²⁸	Demand-side shocks from client markets; geopolitical pressure on IT clients.
Services Imports	195.0	N/A	Less vulnerable compared to other metrics.
FDI Equity Inflow	81.0	1. Singapore (30%) 2. Mauritius (17%) 3. USA (11%) ²⁴	Disruption of capital flows from Western-aligned financial hubs.
ECB (Outstanding)	190.4	(Sourced globally, cleared via USD/EUR systems) ²⁷	Access to international debt markets and dollar/euro clearing systems.

3. Sectoral Deep Dive: Identifying Direct Vulnerabilities

Chapter Highlights:

Energy: India's import of discounted Russian crude, at times 41% of total imports, created economic benefits but also direct exposure to U.S. secondary sanctions and punitive tariffs.⁷

Defense: While diversifying new purchases, the military's operational readiness remains dependent on Russia for spares and maintenance for its vast inventory of legacy hardware like Sukhoi Su-30MKI jets and T-90 tanks.³¹

Pharmaceuticals: India, the "pharmacy of the world," is critically dependent on China for nearly 70% of its Active Pharmaceutical Ingredients (APIs), with reliance reaching 80-100% for essential medicines.³³

Electronics: Despite assembling 99% of phones locally, domestic value addition is low. India imports 85% of components, with China dominating the supply of high-value parts.²³

Gems & Jewellery: The sector, which processes 90% of the world's rough diamonds, is exposed to supply disruptions from key sources like Russia and financial de-risking by global banks.³⁸

While a macroeconomic overview provides a sense of scale, a true understanding of sanction vulnerability requires a granular analysis of individual sectors. The impact of economic coercion is rarely uniform; it targets specific nodes of an economy where dependencies are highest and the potential for disruption is greatest. This chapter dissects India's most critical sectors, quantifying their specific foreign dependencies and explaining the precise mechanisms through which different types of sanctions could directly impair their operations, supply chains, and financial stability.

3.1 Energy Security: The Double-Edged Sword of Discounted Russian Crude

India's energy security is fundamentally linked to global markets, with the nation importing over 85% of its crude oil requirements.⁶ This structural dependency has been thrown into sharp geopolitical relief following Russia's 2022 invasion of Ukraine. Seizing a commercial opportunity, Indian refiners dramatically increased their intake of heavily discounted Russian Urals crude. By 2024, Russia had transformed from a marginal supplier into India's single largest source of crude oil, at times accounting for as much as

41% of total imports.³⁰ This shift provided a significant economic windfall, helping to moderate domestic fuel prices, manage inflation, and boost the profitability of Indian refineries, which processed the cheaper crude into higher-value products for export.⁶

However, this economic advantage came with a direct and foreseeable geopolitical cost. By becoming a primary outlet for Russian oil shunned by the West, India exposed its economy to the direct threat of secondary sanctions. This risk materialized in August 2025, when the United States imposed an additional 25% tariff on a wide range of Indian goods, explicitly linking the penalty to India's energy and defense trade with Moscow.⁷ In response to this pressure, India has been compelled to recalibrate its sourcing strategy. Data from the third quarter of 2025 shows a strategic pivot, with crude imports from the United States surging by 114% year-over-year.³⁰ Simultaneously, imports of Liquefied Natural Gas (LNG) have also been on the rise, increasing by 15.4% in FY25, further diversifying the energy basket.⁴¹

The Russian oil trade serves as a perfect microcosm of India's broader strategic dilemma. The pursuit of economic benefits placed India in the crosshairs of U.S. foreign policy, demonstrating that the threat of secondary sanctions is not hypothetical but a tangible instrument of coercion. This episode has fundamentally reshaped the calculus of Indian energy security. It is no longer a simple matter of securing sufficient volume from the most economical source. Instead, it has become a complex exercise in geopolitical navigation, requiring the maintenance of a carefully balanced and diversified portfolio of suppliers—including traditional partners in the Middle East like Iraq, Saudi Arabia, and the UAE, alongside the U.S.—to mitigate the risk of over-reliance on any single, politically contentious source.³⁰

3.2 Defense Modernization: Navigating the Legacy of Russian Military Hardware

India holds the distinction of being the world's second-largest arms importer for the 2020–24 period, a status that underscores its ongoing military modernization drive.⁴³ Historically, Russia has been the bedrock of India's defense procurement. However, in a clear strategic shift, India has been actively diversifying its supplier base. The data reveals a dramatic decline in Russia's share of Indian arms imports, falling from a commanding 72% in the 2010–14 period to 55% in 2015–19, and further to between

36% and 38% in 2020–24.⁴³

This decline has been matched by the rise of new partners. France has emerged as India's second-largest supplier, accounting for 28-33% of imports, driven by major deals for Rafale fighter jets and Scorpene-class submarines.⁴⁴ The United States and Israel have also become crucial defense partners, supplying advanced platforms like P-8I maritime patrol aircraft and a range of missile and surveillance technologies.⁴⁴

While this diversification of new acquisitions is a strategically sound policy, it masks a deeper, more persistent vulnerability. The bulk of the Indian military's existing operational inventory—particularly in critical domains such as fighter aircraft (Sukhoi Su-30MKI), main battle tanks (T-90, T-72), and strategic air defense systems (S-400 Triumf)—is of Russian origin.³¹ This creates a profound and long-term dependency on Russia for a continuous supply of spare parts, ammunition, maintenance, repair, and overhaul (MRO) services, and periodic system upgrades.

This legacy dependency is the primary vulnerability in the defense sector. Sanctions that specifically target Russia's defense-industrial complex could severely disrupt the MRO supply chain, potentially grounding a significant portion of the Indian Air Force and Army's frontline equipment. The operational readiness of the Indian armed forces could be compromised not by a halt in new purchases, but by the inability to maintain the vast fleet already in service. This situation provides significant leverage to India's Western partners, who could implicitly or explicitly link their own sales of advanced defense technology and intelligence sharing to India's willingness to accelerate the phase-out of its Russian-origin platforms. The challenge for India is not merely to diversify future procurement but to manage the long-tail risk embedded in its decades-old defense relationship with Moscow.

3.3 Pharmaceuticals: The Critical Dependency on Chinese Active Pharmaceutical Ingredients (APIs)

India is rightly celebrated as the "pharmacy of the world," a global leader in the production of generic medicines. The Indian pharmaceutical industry supplies an estimated 20% of global generic drug demand by volume and is a critical source of affordable medicines for countries across the globe, from the United States to sub-Saharan Africa.³³ This formidable downstream manufacturing capability, however, is built upon a fragile and highly concentrated upstream supply chain.

The sector's critical vulnerability lies in its overwhelming dependence on China for Active Pharmaceutical Ingredients (APIs)—the core chemical compounds that give medicines their therapeutic effect—and intermediate chemicals. India imports nearly 70% of its total requirement of bulk drugs and intermediates from China.³³ This dependency becomes even more acute for some of the most essential medicines. For key antibiotics (like ciprofloxacin), painkillers (like paracetamol), and vitamins, India's reliance on Chinese imports ranges from

80% to as high as 100%.³³

Recognizing this strategic vulnerability, the Indian government launched the Production-Linked Incentive (PLI) scheme, a major industrial policy initiative designed to foster domestic manufacturing of critical APIs and reduce import dependency.³⁵ However, the success of this program has been hampered by a concerted economic strategy from Chinese manufacturers. As new Indian API production has come online under the PLI scheme, Chinese competitors have aggressively undercut them on price, in some cases

slashing the landed cost of their APIs by as much as 50% year-on-year.⁴⁹

This dynamic reveals that the threat to India's pharmaceutical sector extends beyond the hypothetical risk of formal sanctions. China's dominance in the API market provides it with a powerful, non-military coercive tool that it can, and does, wield. The willingness of Chinese firms to sell below the production cost of new Indian facilities suggests a deliberate, state-supported strategy to maintain market dominance and prevent India from achieving self-reliance in this critical area.⁴⁹ This is a form of economic warfare, conducted through market mechanisms, that is just as effective as a formal embargo. It means that India's status as a global pharmaceutical power rests on a precarious foundation, the stability of which is largely controlled by its primary geopolitical rival. Any disruption, whether through deliberate export restrictions from Beijing or as a result of secondary sanctions impacting Sino-Indian trade, could have cascading effects on global health security.

3.4 Electronics and High-Tech Manufacturing: The Supply Chain Challenge

The 'Make in India' initiative has visibly transformed the landscape of electronics manufacturing in the country, particularly in the smartphone segment. A decade ago, the market was dominated by imports; today, an impressive 99% of all mobile phones sold in India are assembled domestically.²³ This has been hailed as a major policy success, attracting global giants like Apple to significantly scale up their Indian assembly operations.³⁷

However, this downstream success in assembly masks a persistent and arguably deepening upstream vulnerability. The reality is that India remains critically dependent on imports for the high-value components and raw materials that form the core of these electronic devices. Local value addition in the assembly process remains remarkably low—estimated at a mere 6-8% for an Apple iPhone and only reaching 25-30% for some Samsung models.²³ To manufacture sophisticated products like smartphones and semiconductors, India needs to import approximately

85% of the necessary raw materials and components.³⁷

China is the undisputed dominant supplier in this upstream ecosystem. It accounts for 43.9% of India's total electronics imports, a figure that becomes even more stark in specific categories: 80.5% of laptops and tablets, 82.7% of solar cells, 78.9% of solar panels, and 75.2% of lithium-ion batteries are sourced from China.⁵² While there is a clear strategic push by Indian manufacturers to diversify their partnerships towards Taiwanese, South Korean, and Japanese firms, the scale and cost-effectiveness of the Chinese supply chain make it indispensable in the short to medium term.⁵⁴

This situation exemplifies the "shifting dependency" problem. The 'Make in India' policy has successfully substituted the import of finished goods (a downstream activity) but has, in turn, fueled a massive increase in the import of critical components, raw materials, and capital machinery (upstream goods). This has not eliminated vulnerability but has merely shifted it to a different, more sophisticated, and harder-to-replace segment of the value chain. This creates a new and potent choke point. Sanctions or export controls targeting the supply of specific Chinese components—such as display panels, integrated circuits, camera modules, or rare earth magnets essential for EV motors—could bring India's burgeoning electronics assembly industry to a grinding halt. The true measure of self-reliance is not the final point of assembly but the degree of domestic value addition and control over the component ecosystem. In this crucial area, despite headline successes, India still has a long and challenging path ahead.

3.5 Gems and Jewellery: Exposure to Supply Disruptions

The Indian gems and jewellery sector is a cornerstone of the country's export economy and a significant source of employment. Its global dominance is most pronounced in the diamond industry, where Indian hubs like Surat are responsible for cutting and polishing an estimated 90% of the world's rough diamonds.³⁸ This massive processing capacity makes the sector entirely dependent on a steady inflow of imported raw materials. The primary sources for these rough diamonds are the United Arab Emirates (a major trading hub), Belgium (Antwerp), and

Russia.⁵⁶

This reliance on Russian supply has created a direct vulnerability to Western sanctions. Following the conflict in Ukraine, the G7 nations imposed sanctions targeting Russian diamond mining giant Alrosa. These measures, which went into effect in 2024, directly disrupted a key supply channel for Indian processors, creating uncertainty and forcing the industry to navigate complex compliance requirements to ensure the provenance of their stones.⁵⁷

Beyond diamonds, the sector's other pillar is gold. India has a voracious cultural and investment-driven appetite for the yellow metal, with gold imports surging by 30% in FY 2023-24 to reach $48.8 billion.⁵⁸ The primary sources for these imports are Switzerland (a major refining and financial center), South Africa, and the UAE.⁵⁸

The vulnerability of the gems and jewellery sector thus operates on two distinct levels.

The first is the direct risk of supply chain disruption, as exemplified by the sanctions on Russian diamonds. Any geopolitical event or sanction that chokes off the supply of rough diamonds or gold from key sources would immediately impact the viability of thousands of small and medium-sized enterprises (SMEs) that form the backbone of the industry.
The second is a more subtle, indirect risk related to the sector's role in global finance. Due to the high value and easy portability of gold and diamonds, the industry is inherently susceptible to being used as a vehicle for money laundering and sanctions evasion. A perception among Western regulators that the Indian industry is becoming a weak link in global anti-money laundering (AML) and countering the financing of terrorism (CFT) enforcement could lead to severe consequences. This might not take the form of direct sanctions on India, but rather "market access sanctions," where major international banks refuse to finance Indian jewellery businesses, or large retailers in the US and Europe refuse to source from India due to heightened compliance and reputational risks. This second-order risk is a significant, long-term vulnerability for the sector's global standing.

4. The Contagion Effect: Analyzing Inter-Sectoral Linkages

Chapter Highlights:

The Domino Effect: A sanction-induced shock in one sector propagates through the economy via backward and forward linkages, creating a contagion effect that amplifies the initial disruption.

Automotive Sector: A slowdown in the auto industry, which accounts for 49% of manufacturing GDP, triggers a domino chain, impacting the vast ancillary components industry (employing 5 million people) and primary input sectors like steel.⁵⁹

IT & Financial Services: These sectors face indirect, demand-driven risks. Sanctions on their global clients in the U.S. and Europe lead to cuts in discretionary tech spending, delaying projects and slowing growth for Indian firms.⁶¹

Logistics Paralysis: Sanctions create systemic "logistical friction," causing shipment delays, inventory pileups, and increased costs, potentially paralyzing the entire trade ecosystem.⁶¹

The true impact of sanctions on a complex, integrated economy like India's cannot be understood by examining sectors in isolation. A sanction-induced shock in one area rarely remains contained; instead, it propagates through a dense network of backward and forward linkages, creating a contagion effect that can amplify the initial disruption. This chapter analyzes these inter-sectoral dependencies, demonstrating how a crisis in a primary target sector can trigger a domino chain of negative consequences across the broader economic landscape, from manufacturing and services to employment and logistics.

4.1 The Automotive Domino Chain: Impact on Ancillary Industries, Steel, and Employment

The automotive sector serves as a powerful engine for the Indian economy, with a turnover that constitutes 7.1% of the nation's GDP and a remarkable 49% of its manufacturing GDP.⁵⁹ Its significance extends to the auto components, or ancillary, industry, which is a major sector in its own right, accounting for 2.3% of GDP and employing an estimated

5 million people.⁵⁹ These two sectors are inextricably linked in a symbiotic relationship; the health of the ancillary industry is almost entirely dependent on the production volumes of the Original Equipment Manufacturers (OEMs).⁶⁴

This deep integration means that the automotive sector functions as a potent economic multiplier, both in periods of growth and in decline. A downturn in vehicle sales, as witnessed in 2019-20, has a direct and immediate cascading effect on the entire manufacturing ecosystem. A drop in demand forces major OEMs to cut production schedules, which in turn leads to a sharp reduction in orders for ancillary manufacturers.⁵⁹ The impact of such a slowdown is severe, with an estimated

3.45 lakh jobs lost during the 2019 downturn alone.⁵⁹ The shockwave continues to propagate backward, reducing demand for primary inputs like steel, plastics, rubber, and glass.

Sanctions could trigger this domino chain through two primary mechanisms.

Import-side sanctions could disrupt the supply of critical components, particularly advanced electronics and semiconductors sourced from China, Taiwan, or South Korea. A shortage of these components would force OEMs to halt production lines, starving the domestic ancillary industry of orders.
Export-side sanctions, such as the punitive tariffs imposed by the United States, directly impact the revenue and profitability of vehicle and component exporters, making Indian products less competitive in key overseas markets.⁶⁶

In either scenario, the economic pain is not confined to large, publicly listed OEMs like Tata Motors, Mahindra & Mahindra, or Maruti Suzuki. The most acute impact is felt by the vast, multi-tiered ecosystem of ancillary component manufacturers. This ecosystem is predominantly composed of Micro, Small, and Medium Enterprises (MSMEs) that operate with less capital, thinner profit margins, and a greater vulnerability to demand shocks and liquidity crises. Therefore, a sanction-induced slowdown in the automotive sector would not merely affect a few corporate giants; it would trigger a widespread industrial and employment crisis, with the impact being geographically concentrated in major manufacturing hubs across states like Tamil Nadu, Maharashtra, Gujarat, and Haryana.

4.2 Financial and IT Services Under Pressure: The Indirect Impact of Sanctions

India's Information Technology (IT) and Business Process Management (BPM) services industry is a global powerhouse and a primary driver of the nation's services-led growth model. With industry revenues projected to exceed $282 billion in FY2025, the sector is heavily export-oriented, deriving the majority of its business from clients in North America and Europe.²⁸

The vulnerability of the IT sector to sanctions is almost entirely indirect and demand-driven. It is highly unlikely that an Indian IT services firm would be the direct target of a sanction. However, the financial health of the industry is inextricably linked to the economic well-being and spending patterns of its global clientele. When sanctions or punitive tariffs are imposed on key client industries—such as manufacturing, retail, banking, or logistics in the United States or the European Union—the ripple effects are felt directly in India.⁶¹

The mechanism of this contagion is straightforward. A U.S.-based manufacturing client hit by tariffs or supply chain disruptions will face rising input costs and market uncertainty. In response, the company will often seek to contain costs by cutting discretionary spending. Budgets for new IT projects, digital transformation initiatives, and consulting engagements are frequently among the first to be postponed or scaled back.⁶⁹ This leads to delayed decision-making, longer sales cycles, and a general slowdown in demand for the services provided by Indian IT firms.

This dynamic effectively positions the Indian IT sector as a "shock absorber" for global economic volatility and geopolitical tensions. The tariff situation comes at a particularly challenging time for the industry, which is already navigating a period of slower global tech spending and macroeconomic uncertainty.⁶² A prolonged period of trade wars and sanctions, even if not directly aimed at India or its IT industry, would create a significant chilling effect on global IT investment. This would directly impact India's largest services export, a key generator of foreign exchange, and a vital source of high-quality, white-collar employment, potentially delaying the sector's recovery and moderating its long-term growth trajectory.

4.3 Logistics and Supply Chain Paralysis: Cascading Disruptions

Economic sanctions are, at their core, a direct assault on the connective tissue of a modern economy: its logistics networks and supply chains. The impact of these measures extends far beyond the specific goods or entities being targeted, creating a systemic "logistical friction" that adds cost, time, and uncertainty to the entire process of trade.⁶¹

The disruptions manifest in multiple ways.

Sanctions necessitate a heightened level of compliance and due diligence, leading to increased documentation and more rigorous customs checks, which cause significant shipment delays.⁶¹
The anticipation of future tariffs often leads companies to engage in "front-loading"—accelerating shipments to get ahead of the deadline. While rational, this practice can lead to severe downstream problems, including inventory pileups at ports and warehouses, strained logistics capacity, and intense pressure on corporate cash flow.⁶¹

Furthermore, a disruption in one part of the supply chain can paralyze activities in another. A sanction blocking the import of a single piece of critical machinery from Europe or the U.S. can bring an entire manufacturing plant to a standstill, rendering its domestic suppliers and workforce idle.⁶³ The most severe form of disruption occurs through financial sanctions, particularly those that restrict access to global payment systems. The exclusion of a country's banks from a network like

SWIFT can paralyze its ability to conduct international trade, as importers and exporters lose the ability to securely and reliably make or receive payments for shipments.⁷¹

This illustrates that the contagion effect of sanctions is not merely an abstract economic concept but a tangible, physical process. A sanction on a specific chemical intermediate from China does not just affect the pharmaceutical company that requires it for production. The ripple effect touches the shipping line contracted to transport the container, the port that must process its clearance, the trucking company that moves it inland, the warehouse that stores it, and the bank that finances the entire transaction. For a complex, manufacturing-intensive, and globally integrated economy like India, this cumulative logistical friction can ultimately prove to be a more significant and debilitating drag on economic growth than the direct impact of the initial sanction itself.

5. The Financial Plumbing: SWIFT Dependency and Emerging Alternatives

Chapter Highlights:

SWIFT's Central Role: The SWIFT messaging network is the backbone of global finance. Exclusion from this network, as seen with Russia and Iran, effectively severs a country's connection to the international financial system.⁷²

Systemic Vulnerability: For India, the selective exclusion of a major bank from SWIFT as a secondary sanction is a plausible and highly damaging risk that would paralyze its ability to conduct international trade.

Nascent Alternatives: India is developing alternatives like internationalizing its domestic Unified Payments Interface (UPI) and using fintech platforms, but these are not yet scalable substitutes for the high-value corporate trade that relies on SWIFT.⁷⁴

The ability to move money across borders seamlessly and securely is the lifeblood of international trade and investment. Any analysis of sanction vulnerability would be incomplete without a critical examination of the financial infrastructure that underpins these flows. This chapter assesses the systemic risk posed by India's deep integration into the Western-dominated global financial system, focusing on the central role of the SWIFT network. It also evaluates the viability of India's nascent efforts to build alternative payment mechanisms as a strategic imperative for de-risking its economy.

5.1 The Central Role of SWIFT and the Consequences of Exclusion

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is the dominant messaging network used by banks and financial institutions globally to send and receive information, such as instructions for money transfers. It is crucial to understand that SWIFT is not a payment settlement system; it does not hold funds or transfer assets. Rather, it is a secure messaging platform that provides the standardized instructions upon which cross-border transactions are executed through a network of correspondent banks.⁷²

Despite its technical role as a neutral utility incorporated under Belgian law, SWIFT has become a powerful instrument of geopolitical influence. Because it is subject to Belgian and, by extension, European Union regulations, it can be compelled to disconnect financial institutions from its network as part of a sanctions regime.⁷² This has been demonstrated most prominently in the cases of Iran and Russia, where the

exclusion of major banks from the SWIFT network effectively severed their connection to the global financial system, making it exceedingly difficult for them to conduct international trade or access foreign capital.⁷²

For India, the prospect of a complete, nationwide exclusion from SWIFT represents a low-probability but catastrophic "black swan" risk. Such a drastic measure would likely only be considered in the event of broad, punitive international sanctions against the country as a whole. However, a more plausible and still highly damaging scenario involves the selective exclusion of specific Indian financial institutions as a form of secondary sanction. If, for example, a major Indian public or private sector bank were to be disconnected from SWIFT for its dealings with a primary sanctioned entity in Russia or Iran, the consequences would be severe. The sanctioned bank would be unable to process international trade finance, clear cross-border payments, or handle remittances for its vast base of corporate and retail customers. This would create immense disruption, forcing trade to be rerouted through a smaller number of non-sanctioned banks, leading to logistical bottlenecks, increased transaction costs, and significant settlement risk. The deep-seated dependency on the SWIFT network for nearly all external trade and capital flows constitutes a systemic vulnerability for the entire Indian economy.

5.2 Building Resilience: Assessing India's Alternatives

Recognizing the strategic risks associated with over-reliance on a single, Western-controlled financial architecture, India has begun to explore and develop alternative payment systems. The most prominent success in this domain is the Unified Payments Interface (UPI), a world-class domestic real-time payment system that has revolutionized retail transactions within India.⁷⁴ The government and the National Payments Corporation of India (NPCI) are actively working to internationalize the UPI network, establishing linkages with other countries to facilitate cross-border remittances and retail payments. However, while promising, these capabilities are still in their nascent stages and are

not yet a viable substitute for the high-value, trade-finance-oriented traffic that flows through SWIFT.⁷⁴

In the realm of international business-to-business (B2B) payments, a growing ecosystem of financial technology (fintech) platforms—such as Skydo, Wise, and Payoneer—is providing Indian exporters and importers with more efficient alternatives.⁷⁶ These platforms often leverage a hybrid model, using a combination of SWIFT for certain legs of a transaction and domestic payment rails like the Automated Clearing House (ACH) in the U.S. or the Single Euro Payments Area (SEPA) in Europe to reduce costs and accelerate settlement times.⁷⁷

Furthermore, India has pursued bilateral arrangements for trade settlement in local currencies, such as the Rupee, with a number of countries. This allows trade to be conducted while bypassing the U.S. dollar and the corresponding clearing systems. However, the scale of this rupee-based trade remains limited and is not a practical solution for the majority of India's global commerce.

India's strategy for financial de-risking is therefore twofold but, as yet, incomplete. The internationalization of UPI is a valuable long-term project for the retail and remittance space, but it does not address the core needs of corporate trade finance. The rise of fintech alternatives provides welcome agility and cost savings at the transactional level but does not create true systemic independence, as many of these platforms still rely on traditional correspondent banking relationships and the SWIFT network at some point in the payment chain.⁷⁷ Consequently, while India is successfully building resilience at the margins, it currently lacks a scalable, credible, and universally accepted alternative to the SWIFT system for the bulk of its international trade and investment flows. The financial plumbing of its external sector remains deeply integrated with, and therefore vulnerable to, the Western-dominated global system.

6. India's Strategic Response: A Multi-Pronged De-Risking Agenda

Chapter Highlights:

'Make in India' - A Mixed Record: The policy has been a tangible success in the defense sector, with domestic production soaring and import dependency falling. In electronics, however, it has created an "assembly-only" model that has deepened reliance on upstream component imports from China.²³

Trade Diversification: India is actively pursuing Free Trade Agreements (FTAs) with the UK and EU as a strategic hedge to counterbalance its heavy trade dependence on China and legacy reliance on Russia.⁸⁰

Navigating US Tariffs: India's response to punitive U.S. tariffs has been a pragmatic mix of public resistance, private negotiation, strategic market diversification, and tactical commercial concessions, demonstrating a flexible "strategic autonomy" in practice.⁶

Faced with a complex and often volatile geopolitical environment, the Indian government has initiated a series of strategic policies aimed at enhancing economic resilience and reducing critical vulnerabilities. These initiatives represent a concerted effort to de-risk the economy by fostering domestic capabilities, diversifying trade partnerships, and navigating great power competition with a pragmatic, interest-driven approach. This chapter critically evaluates the effectiveness of these key policy responses, assessing whether they are successfully achieving their stated goals of self-reliance or, in some cases, creating new and unforeseen dependencies.

6.1 From Importer to Producer: Evaluating 'Make in India' in Defense and Electronics

The 'Make in India' initiative, launched in 2014, stands as the cornerstone of the government's strategy to transform the country into a global manufacturing hub and curtail its reliance on imports.²³ The program's impact has varied significantly across sectors, offering a clear tale of two distinct outcomes in defense and electronics.

In the defense sector, where the government is the primary, and often sole, buyer (a monopsony), the policy has yielded tangible and impressive results. Bolstered by a policy that reserves a significant portion of the capital procurement budget for domestic manufacturers, India's defense production reached a record ₹1.27 lakh crore in FY 2023-24, with defense exports soaring to an all-time high of ₹23,622 crore in FY 2024-25.⁸⁴ This marks a dramatic reversal from the past, with domestic manufacturing now accounting for an estimated

65% of defense equipment, a significant shift from the previous 65-70% import dependency.⁷⁸ The initiative has successfully nurtured the development of major indigenous platforms, including the Light Combat Aircraft (LCA) Tejas, the INS Vikrant aircraft carrier, and various artillery and missile systems.

In the electronics sector, however, the results are more ambiguous. This is a highly competitive, consumer-driven market where government policy has less direct control over sourcing decisions. The Production Linked Incentive (PLI) scheme has been successful in attracting massive downstream investment in assembly operations from global giants like Apple and its contract manufacturers.⁷⁹ This has led to a boom in local assembly of products like smartphones. However, this success has not translated into a corresponding increase in domestic value addition. The electronics ecosystem remains an

"assembly-only" model, which has, in fact, deepened the country's reliance on upstream imports of critical components, semiconductors, and raw materials, primarily from China.²³ The policy has therefore not achieved true self-reliance but has instead shifted the point of dependency to a more technologically sophisticated and harder-to-replicate part of the value chain.

The critical long-term variable that could fundamentally alter this dynamic is the success of the India Semiconductor Mission. With a significant government outlay of ₹76,000 crore, this mission aims to establish a complete domestic ecosystem for chip design, fabrication, and packaging.⁸⁵ The first 'Made in India' chip is anticipated by the end of 2025, a milestone that could mark the beginning of a genuine shift towards technological self-reliance.⁸⁷ However, the impact of these capital-intensive, long-gestation projects will not be fully realized for several years, leaving the electronics sector vulnerable in the interim.

6.2 Diversifying Partnerships: The Strategic Imperative of FTAs with the UK, EU, and Beyond

In parallel with its push for domestic manufacturing, India is pursuing an active strategy of trade diversification aimed at reducing its economic reliance on any single market or geopolitical bloc. This agenda is spearheaded by the negotiation of ambitious Free Trade Agreements (FTAs) with key economic partners.

A landmark achievement in this effort is the conclusion of an FTA with the United Kingdom in May 2025, with the formal signing scheduled for July 2025.⁸⁰ This comprehensive agreement is set to eliminate tariffs on 99% of Indian exports to the UK and significantly reduce duties on British goods, with the goal of nearly doubling bilateral trade to

$120 billion by 2030.⁹⁰

Simultaneously, negotiations for a similarly comprehensive FTA with the European Union are advancing at a rapid pace. With 12 rounds of talks already completed, both sides are aiming to reach an agreement by the end of 2025.⁸¹ Beyond these new agreements, the government is also focused on deepening trade and maximizing the benefits from its existing pacts with partners such as the UAE, Australia, and the ASEAN bloc.⁸²

This concerted push for FTAs, particularly with Western partners like the UK and the EU, serves as a clear strategic hedge. The motivations extend beyond purely economic benefits like lower tariffs and enhanced market access. These agreements are instruments of geopolitical alignment, designed to counterbalance India's heavy trade dependence on China and its legacy strategic reliance on Russia. By integrating more deeply with the economies of the West, India gains access to more resilient supply chains, advanced technology, and a diversified base of export markets and investment sources.

However, this alignment is not without its own set of implicit expectations and potential vulnerabilities. Deeper economic integration with the West will likely be accompanied by increased diplomatic pressure on India to align more closely with their foreign policy positions, particularly concerning countries like Russia and Iran. This could constrain India's ability to exercise its "strategic autonomy" in the future. In essence, the FTAs are a crucial tool for de-risking the Indian economy from its dependencies on China, but they may simultaneously increase its vulnerability to geopolitical pressure from its new, and equally powerful, partners. The strategy reduces one type of risk (supply chain concentration) while potentially heightening another (pressure to conform to Western geopolitical objectives).

6.3 Navigating the Tightrope: A Case Study of India's Response to US Tariffs

The imposition of punitive U.S. tariffs in August 2025 provides the most vivid and contemporary case study of India's geopolitical predicament and its evolving response strategy. The U.S. action, which ultimately subjected an estimated $48.2 billion of Indian merchandise exports to a 50% tariff, was explicitly framed as a penalty for India's continued commercial and strategic engagement with Russia, particularly in the energy and defense sectors.⁷ This event confirmed that the threat of secondary sanctions is a real and present danger to the Indian economy.

India's response to this direct economic coercion has been notably pragmatic and multi-tracked, avoiding both outright capitulation and direct confrontation. The strategy has unfolded along several parallel lines:

Public Resistance and Diplomatic Protest: The Indian government publicly condemned the tariffs as "unfair, unjustified and unreasonable," vowing to take all necessary actions to protect its national interests. This firm public posture was crucial for domestic political messaging and for asserting its sovereign right to formulate its own foreign policy.⁴⁰
Bilateral Engagement and Negotiation: Behind the scenes, India has kept diplomatic channels open, continuing to engage in bilateral trade negotiations with the U.S. to find a resolution and de-escalate the situation. The objective is to manage the conflict through dialogue rather than allowing it to spiral into a full-blown trade war.⁸
Strategic Diversification: The tariff shock has added a new sense of urgency to India's long-term strategy of diversifying its export markets. The government has accelerated its efforts to deepen trade ties with other regions, including Europe, ASEAN, Africa, and the Middle East, in a concerted push to mitigate the impact of the U.S. tariffs and reduce its dependence on the American market.⁸²
Tactical Commercial Concessions: Perhaps the most subtle element of the response has been a concurrent shift in commercial behavior. During the same period that India was protesting the tariffs, its refiners were also significantly increasing their imports of crude oil from the United States, providing a commercial concession to a key U.S. industry.⁶

This multifaceted approach is a clear demonstration of India's "strategic autonomy" in practice. It is not a rigid, ideological stance but a flexible and tactical navigation of the complex currents of great power competition. The key takeaway from this episode is that India will not capitulate easily to external pressure. Instead, it will seek to manage and de-risk such situations through a sophisticated combination of firm diplomacy, pragmatic commercial adjustments, and a long-term commitment to strategic diversification. This response is likely to serve as the template for how India will handle similar geopolitical challenges in the future.

7. Concluding Analysis and Strategic Outlook

Chapter Highlights:

Composite Risk Profile: India's vulnerability is defined by four structural weaknesses: critical import dependencies (China APIs, Russian defense MRO), the GDP-employment mismatch, reliance on Western financial infrastructure (SWIFT), and indirect demand-side risks to the IT sector.

Critical Choke Points: The most acute vulnerabilities are the upstream supply of components from China, the MRO supply chain for Russian military hardware, and access to the global financial system.

Future Flashpoints: Potential triggers for sanctions include an escalation of conflict over Taiwan, intensified sanctions on Russia, or the weaponization of trade dependencies by China.

Strategic Imperative: For policymakers, the focus must shift from downstream assembly to upstream manufacturing of core components. For investors, rigorous due diligence on supply chain vulnerabilities is now a critical part of risk assessment.

The preceding analysis has mapped the complex architecture of modern sanctions and traced their potential pathways of impact through the Indian economy. By moving from a macroeconomic overview to granular sectoral deep dives and an examination of inter-sectoral contagion, a nuanced picture of India's vulnerabilities and resilience emerges. This concluding chapter synthesizes these findings into a holistic risk profile, identifies the most critical future flashpoints, and offers strategic considerations for investors and policymakers navigating this intricate landscape.

7.1 A Composite Risk Profile of the Indian Economy

The Indian economy's vulnerability to international sanctions is not monolithic but multifaceted, stemming from the unique structure of its growth model and its specific position within global value chains. The composite risk profile can be summarized by four key structural weaknesses:

Critical Import Dependencies in Strategic Sectors: Despite significant progress in domestic manufacturing, India remains critically dependent on imports for foundational inputs in its most important industries. This includes Active Pharmaceutical Ingredients (APIs) and electronic components from China, specialized MRO services and spares for its legacy defense platforms from Russia, and crude oil to fuel its economy. These dependencies represent direct and potent levers that can be used by foreign powers to exert pressure.
The "GDP-Employment Mismatch": The bifurcation of the Indian economy—with a high-value, globally-integrated services sector driving GDP and a low-productivity, labor-intensive agricultural sector employing the largest share of the workforce—creates a dual vulnerability. Sanctions targeting the services sector would inflict maximum economic damage, while sanctions targeting agriculture would cause maximum social and political disruption. This complicates any policy response, forcing a difficult choice between protecting economic growth and ensuring social stability.
Structural Reliance on Western Financial Infrastructure: The lifelines of the modern Indian economy—from trade finance and corporate borrowing (ECBs) to foreign direct and portfolio investment—are overwhelmingly dependent on the Western-controlled global financial system. Access to U.S. dollar clearing and the SWIFT messaging network are non-negotiable for participation in the global economy, creating a systemic vulnerability to financial sanctions.
Indirect, Demand-Side Risks to the Services Sector: The IT services industry, India's flagship export sector, faces a significant second-order risk. Its financial health is directly correlated with the economic performance and spending patterns of its clients, who are concentrated in North America and Europe. Geopolitical tensions and trade wars that harm these client industries will inevitably lead to a contraction in demand for Indian IT services, even if the sector itself is not a direct target.

7.2 Identifying Critical Choke Points and Future Flashpoints

Based on the sectoral analysis, several critical choke points can be identified where the potential for disruption is highest and viable alternatives are most limited. These represent the most acute vulnerabilities in the Indian economic system:

Upstream Supply Chains from China: The most immediate and potent choke point is the supply of Chinese APIs for the pharmaceutical industry and the vast array of components (semiconductors, display panels, battery cells) for the electronics manufacturing sector. This dependency gives Beijing significant, non-military leverage.
Russian Defense MRO: The maintenance, repair, and overhaul supply chain for India's vast inventory of Russian-origin military hardware is a critical strategic vulnerability. A disruption here could severely impact India's defense preparedness.
Global Financial Access: The reliance on the SWIFT network and U.S. dollar clearing for international transactions remains a systemic choke point. The selective de-SWIFTing of a major Indian bank as a secondary sanction would cause immense economic disruption.

Looking ahead, several geopolitical scenarios could act as flashpoints, triggering the activation of these choke points:

Escalation of Conflict over Taiwan: A major geopolitical crisis involving China, such as a conflict over Taiwan, would likely trigger severe Western sanctions on Beijing. This would place India in an extremely difficult position, as its critical supply chains would be disrupted, and it would face immense pressure to align with the Western bloc.
Intensification of Sanctions on Russia: A further escalation of the conflict in Ukraine could lead to a more aggressive enforcement of secondary sanctions on countries trading with Russia, placing India's energy and defense relationships under renewed and intensified pressure.
Weaponization of Trade Dependencies: A deterioration in Sino-Indian bilateral relations could lead China to use its dominance in key supply chains (e.g., APIs, rare earth minerals, solar components) as a direct coercive tool against India, operating below the threshold of a formal military conflict.

7.3 Strategic Considerations for Investors and Policymakers

The complex risk profile of the Indian economy necessitates a more sophisticated approach to decision-making for both private and public sector actors.

For Investors:

The era of assessing India based on broad sovereign risk metrics is over. A granular, bottom-up approach is now essential.

Supply Chain Due Diligence: Investors must look beyond corporate balance sheets and conduct rigorous due diligence on the specific supply chain vulnerabilities of their target investments. Understanding a company's dependency on single-source, geopolitically risky suppliers is now a critical component of risk assessment.
Focus on Domestic Value Addition: Companies and sectors with high domestic value addition, diversified export markets, and lower reliance on critical imported inputs will prove to be more resilient in a volatile global environment.
Evaluating 'Make in India' Opportunities: The government's push for self-reliance in sectors like semiconductors, APIs, and defense manufacturing presents significant long-term investment opportunities. However, these must be weighed against short-to-medium term execution risks, capital intensity, and the potential for aggressive price competition from established global players.

For Policymakers:

India's current de-risking strategies are necessary but not yet sufficient to build true economic resilience.

Move Beyond Assembly: The focus of industrial policy must shift decisively from downstream assembly to upstream manufacturing. Fostering genuine R&D, technology transfer, and domestic production of core components like semiconductors and APIs is the only sustainable path to reducing critical dependencies.
Accelerate Financial Infrastructure Alternatives: While UPI's internationalization is a positive step, India must accelerate the development of a robust, scalable alternative financial infrastructure for B2B trade finance. This is a matter of long-term strategic necessity to reduce the systemic vulnerability associated with over-reliance on Western-controlled financial plumbing.
Balancing Autonomy and Alignment: The ultimate challenge for Indian statecraft will be to navigate the fine line between building resilience and maintaining strategic autonomy. The pursuit of FTAs and deeper integration with Western economies is a pragmatic hedge, but it must be managed carefully to avoid trading one form of dependency for another. The goal must be to build an economy that is robust enough to withstand external pressures without sacrificing the independent foreign policy that has been the hallmark of the Indian republic.

Disclaimer: The content of this article is for general informational purposes only. It represents an analytical exercise based on publicly available information and should not be construed as financial, investment, or political advice. The scenarios discussed are hypothetical and do not constitute a prediction of future events.