Lt Gen Sudhir Sharma
PVSM, AVSM, YSM, VSM
Chairman, MitKat Advisory
The turbulent geopolitical landscape of 2025 marked a discernible shift in India’s external security environment. The shadows of the events of the past year will have a telling effect on the risks and opportunities that will shape the trends for 2026. A fragmented global order, persistent conflicts in Europe and West Asia, intensified big power rivalry in the Indo Pacific, weaponisation of trade and controlled access to high technology have squeezed out much of the strategic space, giving rise to volatility and ambiguity, which impinges on India’s desire for strategic autonomy.
As we enter 2026, we are no longer navigating a familiar world of stable alliances but a fragmented world order where national sovereignty and economic security are fluid and transactional. For business leaders this represents a dynamic shift from managing ‘growth’ to managing systemic disruptions and contending with hyper-nationalism.
On India’s Western front, the short but intense conflict with Pakistan in 2025 has driven relations to their lowest point in decades. Terrorism remains a top risk, and deterrence is fragile. The tense standoff could escalate into skirmishes or a larger confrontation, requiring a recalibration of India’s security architecture.
Concurrently the Eastern Sector bordering Bangladesh presents its own set of diverse security challenges. Relations with Bangladesh shifted sharply in 2025, driven by political instability, consequent to the ouster of the Awani League. The widening trust deficit and the overheated internal situation in Bangladesh poses a significant threat to Indian Interests. The forthcoming elections (if held fairly and objectively) will be a litmus test for the internal stability of Bangladesh. Pre and post poll violence are most likely and may have a ripple effect in India. Relations between the countries will continue to be strained and tense in 2026, seriously impacting transit and business growth.
On a positive note, the relations with China remained comparatively stable and have shown limited but notable improvement in 2025, and the thaw is likely to continue in 2026, giving rise to business opportunities and some synergy in approach to global issues. The resumption of direct flights and an easier visa regime could provide the momentum for business growth and tourism. Though trust deficit remains high, it is likely that India’s relations with China may mature to one of cautious but competitive coexistence. This would require sustained confidence building measures from both sides.
India-United States relations will remain a central pillar of India’s external engagement in 2026, though it will be marked by greater complexity and some irritants. Strategic convergence in defence, technology and the Indo-Pacific is expected to continue, despite the tariff related concerns and frictions. QUAD is expected to strengthen, with a sharper technological and security focus. Simultaneously, India will deepen engagement with BRICS and the Global South, balancing strategic autonomy with diplomatic flexibility – a critical tightrope in a fractured world.
Internally the risks confronting India in the coming year will be shaped by the interplay of political polarisation, governance pressures and socio-economic disparities. Left-wing extremism is waning and may be eliminated by 2026, bolstering internal security. However, high-stake state elections could trigger unrest and stress governance systems.
Despite external fragility, India enters 2026 with strong economic fundamentals, infrastructure upgrades, and a growing role in global manufacturing and technology ecosystems. Realignment of global supply chains offers opportunities India is well-positioned to seize. Structural reforms in the nuclear energy sector will give a boost to India’s energy mix and improve the overall energy-security paradigm.
As we look ahead, 2026 is likely to be a year of continued external fragility, yet a resilient internal security framework, coupled with a buoyant macro-economic outlook. India can look forward to a period of sustained growth and stability, overcoming moderate internal challenges and governance pressures. Advances in AI, semiconductors, and manufacturing will further propel growth. India will need great acumen in navigating an increasingly polarised world order, while maintaining its strategic autonomy, and safeguarding its national interests.
The year 2025 for India was characterized by acute security shocks, tightening geoeconomic headwinds, and mounting climate and public-health pressures even as the country deepened strategic partnerships, consolidated its role as a regional corporate and digital hub, and pressed ahead with institutional reforms. A multi-domain crisis with Pakistan, persistent maritime insecurity, resurgent piracy, Red Sea cable disruptions, and a sharp U.S. tariff shock underscored a risk environment in which episodic external triggers rapidly translate into domestic operational disruption. Domestically, intensified communal polarization, sector-wide labour actions, reservation mobilizations, and urban infrastructure fragility combined with scaled AI-enabled cyber-fraud to raise the baseline of day-to-day risk for businesses and communities.
Looking ahead to 2026, the outlook is one of cautious resilience – external ties will be marked by strategic convergence with the United States amid trade and mobility frictions, managed competition with China, and fragile deterrence with Pakistan; internally, policy continuity will persist alongside execution gaps, uneven state-level governance, and climate-driven stress on assets and services.
As we enter 2026, we are no longer navigating a familiar world of stable alliances but a fragmented world order where national sovereignty and economic security are fluid and transactional. For business leaders this represents a dynamic shift from managing ‘growth’ to managing systemic disruptions and contending with hyper-nationalism
Geopolitically, India-China relations exhibited cautious stabilization. Corps Commander dialogue continued, high-level political contacts resumed, and direct commercial flights were reinstated after five years, reducing immediate confrontation risk along the Line of Actual Control (LAC). Yet structural constraints – including PLA consolidation in Tibet, new hydropower activity on the Yarlung Tsangpo, and recurring cyber and financial-security frictions – kept the relationship within a framework of tactical engagement embedded in strategic competition. With limited verifiable disengagement on the ground, ties in 2026 are likely to remain managed rather than normalized.
By contrast, India-Pakistan relations entered their most volatile phase since 2019. The April Pahalgam massacre in Jammu & Kashmir precipitated Operation Sindoor – targeted Indian missile and air strikes on terrorist infrastructure in Pakistan-Occupied Kashmir (PoK) – followed by intensified Line of Control (LoC) violations, drone incursions, cyber activity, aviation reroutes, and diplomatic expulsions before a May ceasefire. India’s suspension of its role in the Indus Waters Treaty elevated water security into the strategic domain. Deterrence has been restored but remains fragile, with abundant triggers for rapid, multi-domain escalation through 2026.
In the Middle East, India maintained strong economic ties – Gulf Cooperation Council (GCC) countries trade stayed above USD160 billion and a major financial sector investment (Emirates NBD’s USD3 billion stake in RBL Bank) signalled confidence – even as regional crises compelled naval escorts, airspace adjustments, and diaspora protection. India-Middle East-Europe Economic Corridor (IMEC) remained stalled, pushing India toward incremental bilateral wins, including a prospective Qatar Free Trade Agreement (FTA) and diversification of Liquefied Petroleum Gas (LPG) sourcing to mitigate long-term dependency risks. Concurrently, maritime insecurity increased – piracy resurged in the western Indian Ocean and the Singapore Strait, compounding Red Sea risks to energy and trade corridors. India expanded forward naval deployments and operationalized its Anti-Piracy Act, but the elevated risk will persist into 2026.
Internally the risks confronting India in the coming year will be shaped by the interplay of political polarisation, governance pressures and socio-economic disparities. Left-wing extremism is waning and may be eliminated by 2026, bolstering internal security. However, high-stake state elections could trigger unrest and stress governance systems
India’s integration across APAC accelerated. The country captured nearly half of regional office leasing, strengthened its position as a preferred HQ and Global Capability Center destination, and grew data center capacity to roughly 950 MW. Deeper ASEAN engagement in supply chains, energy, and education, and Quad cooperation on maritime domain awareness and resilient logistics reinforced India’s role as a net security and economic anchor. The May crisis with Pakistan nonetheless stress-tested connectivity, insurance, and regulatory costs, while rapid digital adoption widened the cyber-attack surface and drove a pivot toward data residency and strengthened cybersecurity requirements. In South Asia, beyond the Pakistan crisis, India contended with surging transnational cybercrime, notably from Myanmar-Thailand borderlands, necessitating multilayered crackdowns and tighter fraud controls.
India-U.S. relations deepened strategically with a new 10-year defense framework encompassing co-development, technology transfer, and enhanced interoperability in advanced domains such as engines for indigenous fighters, AI, and quantum. Yet geoeconomic frictions spiked with U.S. tariffs up to 50 percent on key Indian exports, tied partly to Russia oil exposure and broader trade grievances. The tariff shock forced recalibration in export-oriented sectors; late-year negotiations suggested pathways to partial rollbacks and improved market access in 2026. Tightening U.S. student and work-visa regimes and heightened anti-immigrant politics in parts of the West weighed on mobility and diaspora confidence, even as Canada’s diplomatic tone stabilized following leadership change.
Internally, political violence and extremism intensified. Jammu & Kashmir saw a sharp terrorism upsurge and heavy security operations following the Pahalgam attack, alongside intermittent civilian disruption in forward areas. Left-Wing Extremism continued a structural decline with incidents and fatalities sharply below past peaks, but localized tactical risks – including Improvised Explosive Device (IED) and ambushes – persisted along forested Red Corridor. The Northeast’s macro indicators improved, yet Manipur remained volatile with recurrent seizures of arms and explosives and continued cross border linkages to Myanmar. Urban terrorism presented a dual track – high-impact but infrequent attacks (including a car bomb near Delhi’s Red Fort) amid a pervasive wave of hoax bomb threats that disrupted aviation, education, and retail and required standardized drills and Standard Operating Procedures (SOP).
Center-state relations grew more adversarial across select fronts, with opposition-led states mounting legal and political resistance to central initiatives (delimitation, electoral rolls, the Waqf Amendment), and renewed concerns over fiscal centralization as the tax-devolution formula comes under review. For firms, the primary operational risk stems from widening inter-state divergence in regulatory predictability and incentive regimes. Enforcement actions and corruption probes spurred protests and operational disruptions in several capitals, elevating reputational and access risks for sectors reliant on land, licensing, and public procurement. Rajya Sabha arithmetic changed incrementally, supporting routine legislation while leaving contentious reforms dependent on consensus; state outcomes through 2026 will shape Upper House composition and reform timelines. National Democratic Alliance (NDA) victories in Bihar and Delhi signal near-term policy continuity there, while upcoming 2026 elections in Tamil Nadu, Kerala, West Bengal, Assam, and Puducherry portend elevated volatility across major industrial belts.
Environmental, health, and pollution risks have intensified. Urban flooding has evolved into a chronic, high-impact threat driven by intense monsoon bursts, encroached waterways, and undersized drainage, producing annual losses estimated at USD four billion and rising. Disease vectors surged across metros and states – dengue, malaria, chikungunya, scrub typhus, Japanese Encephalitis – straining hospitals and prompting closures; zoonoses added One-Health pressures. Mental health needs have climbed amid heatwaves, pollution, and public-health shocks; reforms expanded primary-care integration and Tele-MANAS, yet demand continues to outpace capacity. Air pollution remain severe, with recurrent Graded Response Action Plan (GRAP-IV) episodes in Delhi-NCR, contamination-linked illnesses, and hazardous chemical incidents; tighter controls and episodic curbs will continue to affect operations.
Socio-economic mobilization was a persistent source of disruption. Communal unrest escalated around festival processions and administrative actions near religious sites, prompting curfews and targeted internet shutdowns. Farmer agitations over Minimum Support Price (MSP), input costs, procurement delays, and land acquisition produced repeated road and rail blockades and procurement-center disruptions across multiple states. Multi-sector labour actions culminated in a nationwide bandh and prolonged essential-service strikes, driven by grievances over new labour codes, wage arrears, and pension reforms. Reservation movements – particularly Maratha and Backward Classes mobilizations – triggered city-scale disruptions and intensified community polarization. These dynamics will likely persist into 2026, amplified by court milestones and the electoral calendar.
Infrastructure resilience yielded mixed outcomes. Health-care capacity expanded through PM-ABHIM and private capex, while medicine-quality lapses and inventory shortfalls revealed supply-chain risks. Urban infrastructure experienced cascading failures – fires, structural collapses, and grid/ water outages – exacerbated by climate extremes and aging assets; regulators escalated enforcement but preventive governance and Operations and Maintenance (O&M) gaps remained significant. Transport infrastructure advanced in build-out but suffered acute safety and reliability failures, including a fatal Air India 787 crash and repeated rail, road, metro-construction, and maritime incidents, underscoring liability and Environmental, Social, and Governance (ESG) risks even as investment pipelines strengthen. Cyber and payments infrastructure remained broadly robust but under pressure – nationwide Unified Payments Interface (UPI) disruptions highlighted concentration risk; Banking, Financial Services, and Insurance (BFSI) supply-chain incidents, ransomware, and data exposures accelerated; regulators mandated banks’ migration to ‘.bank.in’ and exchanges issued geopolitical cyber advisories. Internet-infrastructure resilience was tested by Red Sea cable cuts and domestic last-mile vulnerabilities, reinforcing the need for subsea route diversity, hardened landing stations, and improved dig-safe and power-layer practices.
Policy momentum continued with decriminalization and compliance-light reforms (Jan Vishwas), modernization of sectoral laws (Merchant Shipping Act, 2025), tax simplification (Income-tax Bill, 2025), and expansion of the National Single Window System. Implementation gaps persisted in utility maintenance, municipal coordination, and event-driven congestion. Trade policy balanced opportunity with exposure – the U.S. tariff shock hit labour-intensive exporters; a USD5.1 billion support package cushioned Micro, Small and Medium Enterprises (MSME) clusters; European Free Trade Association (EFTA) Trade and Economic Partnership Agreement (TEPA) implementation began with long-horizon investment commitments; EU talks advanced; selective land-border controls tightened reciprocity with neighbors. Energy security advanced via strategic petroleum reserve expansion, liquefied natural gas (LNG) storage buffer proposals, and Bhutan hydropower imports, even as pipeline, refinery, and grid incidents highlighted operational vulnerabilities. Labour markets remained broadly stable, supported by rural absorption, but urban youth underemployment persisted as a political and demand-side risk. Visa and immigration regimes tightened at home (Immigration and Foreigners Bill, 2025; suspension of Pakistan visas) and abroad, raising compliance burdens and uncertainty in workforce planning.
Technology risks scaled rapidly. Generative-AI-driven deepfakes, identity forgery, and social engineering drove unprecedented losses, with national cyber-fraud costs approaching INR1.2 lakh crore. Digital-arrest scams, sextortion, and authority-impersonation proliferated despite large-scale enforcement disruptions of SIMs, Voice over Internet Protocol (VoIP) accounts, and mule networks. State-affiliated clusters probed critical infrastructure while non-state actors blended cyberfinancial operations with kinetic capabilities in conflict theatres. Global cloud outages and subsea corridor degradation exposed concentration risks, accelerating multi-cloud, multi-region, and on-prem failover adoption among large enterprises.
As India enters 2026, the base case is reform-forward but execution-uneven amid external volatility. Strategic convergence with the U.S. will coexist with trade and mobility friction; China ties will remain transactional and bounded; deterrence with Pakistan will be fragile with abundant escalation triggers; maritime and subsea corridor risks will stay elevated; cyber-enabled financial crime and AI misuse will remain high-frequency threats; and climate-driven shocks will continue to test infrastructure and public-health systems.
Businesses should anchor growth strategies in disciplined resilience – robust crisis communications and escalation playbooks; flood and heat adaptation and asset hardening; buffer inventories and route diversification along sensitive corridors; festival and election-period security and continuity plans; phishing-resistant authentication and out-of-band payment controls; multi-cloud and multi-route network architectures; strengthened vendor-risk and Politically Exposed Person ( PEP) diligence; immigration-reporting and pollution-compliance readiness; and dual-track engagement with central and state governments. Firms that institutionalize these capabilities will be best positioned to sustain operations and capture opportunity in an increasingly complex and climate-stressed environment.
