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India faced a historic military defeat against Pakistan, suffered diplomatic setbacks with Washington, and saw the rupee hit a record low of 91.14 against the dollar in 2025, according to The Financial Times’ annual review. The country’s strategic independence waned as it was forced to balance relations with the US, China, and Russia simultaneously.
Efforts to finalize a trade agreement with the United States were repeatedly delayed, while American tariffs added economic strain on New Delhi. Similarly, partial implementation of GST reforms hindered economic progress. Throughout the year, the Indian rupee continued its decline against the US dollar, reflecting ongoing financial challenges.
Earlier in the year, India and Pakistan clashed in what became their worst military confrontation in decades, ignited by an attack on tourists in Pahalgam, IIOJK, which India accused Pakistan of supporting. Islamabad denied involvement and called for an independent investigation. During the fight, Pakistan shot down seven Indian fighter jets, including three Rafale fighters, and numerous drones; the conflict ended after 87 hours with a ceasefire brokered by the US. Islamabad’s apparent victory in this skirmish helped strengthen Pakistan’s ties with Washington, while US President Donald Trump began taunting India, leveraging his closeness with Pakistani military leaders.
The much-anticipated US-India trade deal failed to materialize. Following Trump’s electoral victory, New Delhi initially celebrated the prospect of a friendly US administration, with Modi visiting Washington early in 2025. However, negotiations stalled by mid-year amid escalating tariffs, including a 25% duty imposed by the US on Russian oil imports. Although officials from both sides expressed optimism earlier on, focus eventually shifted inward, aiming to bolster domestic growth amid the economic uncertainties.
The Indian rupee experienced a sharp decline, losing 6% of its value in 2025 and reaching the record low of 91.14 against the dollar. Relations with neighboring countries also faced difficulties. Ties with Bangladesh deteriorated following the exile of ousted Prime Minister Sheikh Hasina after protests, while India’s attempts to recalibrate its foreign policy with China saw limited success. Modi’s visit to China—the first in seven years—led to reaffirmed commitments to cooperation but also highlighted lingering mistrust. India continues to accuse China of supporting Pakistan during recent hostilities, keeping tensions high on multiple fronts.
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