Donald Trump’s foreign policy in his second term has been uncomfortable for India. But it has revealed a pressing reality: The country faces a 1991 challenge and more in economics and geopolitics, as I suggested at a talk last Saturday at the India International Centre.
In 1991, India faced its most serious economic crisis since Independence. Its finances put it in danger of sovereign default. On the back of the 1990-91 Gulf War, India’s import bill ballooned. Delhi was forced to get an IMF loan and send gold shipments to the UK, Japan, and Switzerland to tide over the foreign exchange crisis.
The year 1991 was also the end of the Cold War. To India’s shock, its security backstop against China and the US disappeared along with the Soviet Union. Falling massively behind the Western countries economically, plus the failures in Afghanistan, irreparably strained the Soviet political system.
India faced a third challenge with US pressures on nuclear proliferation, on human rights (in Kashmir, Punjab, and the Northeast), and on India’s closed economy.
A fourth challenge was China. Twelve years into its economic reforms, China was rising rapidly. It grew at 9 per cent per annum over the 12 years from 1979, and its GDP stood at $380 billion. India grew on average at about 5 per cent after 1979. With a GDP of $270 billion, it was already falling behind.
Finally, in 1991, Pakistan was triumphant. It had partnered the US and China to drive the Soviets out of Afghanistan and felt it was on the winning side in the Cold War (in comparison with India).
In 2026, 35 years later, we find ourselves at a strikingly similar conjunction.
The Indian economy once again faces huge challenges. Clearly, its financial position in 2026 is far more robust than in 1991. On the other hand, the rupee depreciated against the dollar and FIIs moved capital out of India. As in 1991, a Gulf war impacted India, this time leading to energy shortages and inflation. Worryingly, growth remains at 6 per cent, consistent with the 30-year average, but well below the 8 per cent benchmark.
The problem today, though, is not so much in the macro-economy. The problem is in four Cs — commerce (manufacturing), critical minerals/rare earths, computer chips, and computer software and infrastructure for AI. The challenges here are far greater than in 1991. In 1991, a series of structural reforms fixed the crisis and set India on a new growth path — relatively simple to do.
The challenge of the four Cs is much greater. Manufacturing is stagnant despite 30 years of encouragement. We have critical minerals/rare earths but have not sufficiently mapped and mined them; processing is another challenge altogether. Meanwhile, dependence on China ranges from 50 per cent to nearly 100 per cent across minerals and metals. On chips, NITI Aayog estimates that 90-95 per cent of India’s demand until 2035 will be met by imports. And in AI, India has strengths in adoption and talent, but not much of a presence in the AI value chain.
Geopolitically, too, India faces a situation arguably more difficult than in 1991. Today, the US is retreating from its alliances. And the special relationship with India is over: India is just another transactional opportunity, not a partner. In effect, India’s backstop against China has disappeared, with the added threat that Washington is eyeing a G-2 accommodation with Beijing.
In 1991, the US pressured India on nuclear proliferation, human rights, and its economy. In 2026, US pressures are on Indian exports, trade-related labour and other standards, and imports of Russian oil — hardly trivial areas.
By 1991, China was rising but its GDP was only slightly bigger than India’s. In 2026, it has a $20 trillion economy. At 3 per cent growth rates, China’s economy will double by 2050. India’s GDP is $4 trillion. At 6 per cent growth rates, India’s GDP will be $16 trillion in 2050. The current $16 trillion GDP gap will become $24 trillion in 2050.
As for Pakistan, it is once again triumphalist. It feels it did well in the fight with India in 2025. It is integrated deeply with the Chinese military. It is on good terms with China, the US, and Russia, and in 2025, signed a defence agreement with Saudi Arabia. It was also one of the key mediators between the US and Iran in 2026.
What does all this mean for India’s grand strategy?
The economy needs a Manhattan Project on the four Cs, nothing less. Otherwise, India will be stuck at 6 per cent growth rates. And if India does not progress on the four Cs, averaging 6 per cent could become challenging.
Geopolitically, India’s approach to the US and China needs serious thought. Are we content with a “hide-and-bide” strategy with both superpowers where we stay out of their way and concentrate on reforms in our economic journey? Is motoring along in our own lane enough? Should we simply avoid any more bumps with the US and focus more on China? Is “doing a China on China” the answer — using Chinese imports, investment, and innovation to drive India’s growth, as the Chinese did with the US after 1972? Will China indulge us, like the Americans indulged China, without a more fundamental reset with Beijing? What would a more ambitious reset with China mean?
To conclude, India has ridden out the immediate economic crisis of the Iran war and shifting geopolitics of the past year, but a much bigger challenge is upon it.
The writer is visiting professor, International Relations, Ashoka University, and emeritus professor, Lee Kuan Yew School of Public Policy, National University of Singapore
As in 1991, a Gulf war impacted India, this time leading to energy shortages and inflation. 
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