India’s Non-Alignment Strategy Strengthens Its Trade War Position

Yudhishthira’s journey to heaven is an Indian myth that encapsulates the country’s ability to stay true to its values during times of conflict. While one by one, the rest of his family falls from grace due to their partiality, greed, and vanity, Yudhisthira remains steadfast, overcoming a series of tests before being admitted to the celestial realm.    

Despite coming under pressure to align more closely with either the BRICS or the West, India, like the eldest of the mythical Pandavas, has remained steadfast in its neutrality, strengthening its position in trade negotiations. Shrugging off both US tariffs and a push for a joint BRICS currency, India has promoted free trade and currency localisation.    

With the West confiscating hundreds of billions of dollars’ worth of Russian assets and sanctioning Chinese technology companies, the BRICS were justifiably concerned about facing similar sanctions should they ever fall foul of Washington. The bloc responded by investigating a joint trade currency to accelerate de-dollarization.

While an active participant in these efforts, India remained cautious. Not only was there a concern about an overreliance on the yuan in an alternative payment system, but India, despite being one of the world’s most gold obsessed nations, worried a gold-backed currency would favour producers like South Africa over consumers such as itself.

While India might have benefitted from a joint BRICS currency, with the rupee coming under pressure in the high oil price environment following Russia’s invasion of Ukraine, New Delhi was also wary about the optics of a joint BRICS currency with the US remaining its largest trade partner.

However, despite India’s caution about de-dollarisation, Trump still slapped the country with a 25% tariff for running a trade surplus with the US and an additional 25% tariff for importing sanctioned Russian oil. Nevertheless, India stuck to its guns, avoiding overt de-dollarisation while simultaneously refusing to buckle to the US President’s demands.

The results were spectacular. India quickly negotiated a free trade agreement with the UK before going on reach an even larger accord with the European Union. Both deals will see a substantial reduction in tariffs on a wide range of products. Shortly after the EU-India deal was announced, Trump backed down, reducing US tariffs on India to just 18%.

These outcomes validate India’s strategic patience. Instead of bowing to a foreign master or going to war with the dollar, India maintained a constructive diplomatic stance with a wide array of partners, remaining patient, and trusting that its growing economic gravity would ultimately prove irresistible.  

Meanwhile, Trump’s claim that Modi agreed to stop purchasing Russian oil has never been confirmed by any Indian government officials, and while purchases have declined from record highs they remain on-going.

The subsequent ruling by the US Supreme Court, which invalidated Trump’s non-sector specific tariffs, has seen a further reduction in the tariff rate applied to Indian exports. While Trump has applied a 15% universal tariff to all countries under different legislation and uncertainty remains, India’s position in negotiations continues to strengthen.   

Other BRICS have also played their part, with powerhouses like Brazil and more modest economies like South Africa remaining equally brave in standing up to US pressure. Meanwhile, China supported India directly, increasing imports from India by over two-thirds in December 2025 compared with the same period a year earlier.

Indian seafood exports, which were no longer cost competitive in the US under Trump’s illegal tariffs, accounted for most of the increase, combined with a substantial increase in shipments of mobile phone components to China. This reversal of the usual trade flows in this category could be seen as a symbolic gesture of goodwill from Beijing.

In response, India may lift restrictions on Chinese companies bidding for government contract. New Delhi would benefit from China’s experience in infrastructure projects and increased Chinese investments in the Indian manufacturing sector may also be forthcoming as Modi seeks to reinvigorate his ‘Made In India’ campaign.

As such, while India signs major trade deals with the West, it will continue to deepen BRICS co-operation. Having assumed the chairmanship of the bloc this year, India has already unveiled a new BRICS payment system proposal which is less controversial, more efficient, and more egalitarian than previous iterations.  

Instead of a joint BRICS currency, with all the complications this entails, India has proposed an interoperable payment system for exchanging central bank issued digital currencies. This would allow the BRICS to settle cross-border payments in national currencies while bypassing the risks and inefficiencies of an ageing SWIFT system.

Despite its name, SWIFT is actually relatively slow, taking up to the three days to process payments which are made indirectly via correspondent banks. India’s proposal, in contrast, would see direct interbank settlements between BRICS nations, negating exchange fees, and supporting instantaneous payments in national digital currencies.

Although no BRICS member has fully adopted a digital currency, all five main members have run pilot projects, with India's e-rupee having already attracted a total of 7 million retail users since its launch in 2022. India consequently occupies a central position in efforts to develop more efficient cross border payment infrastructure.

A central bank digital currency is not a cryptocurrency. It is sovereign digital form of cash, intended to enhance transactional efficiency while preserving centralized policy control. For India, payment infrastructure allowing these digital versions of national currencies to function more effectively in cross border trade is the ultimate goal.

India and Russia have already learnt a lot, with Moscow accumulating large quantities of rupees from selling oil to India. This highlighted the need for a multilateral system in which currencies could circulate within a wider trading network rather than accumulating as excess cash balances as a result of existing trade dynamics.

As a result, India’s new proposal for a joint inter-BRICS payment system makes use of two additional mechanisms to smooth trade in national central bank digital currencies, namely, settlement cycles and foreign exchange swap lines.

Rather than settling each transaction immediately, which would require constant access to large pools of liquidity, payments between countries would be recorded over a week, month, or quarter. At the close of that cycle, only the net balance need be transferred.

For instance, if India were to import $10 billion worth of goods from China in a month while exporting $8 billion to China, only the remaining $2 billion would need to be settled.

This strategy would sharply reduce the amount of currency required, lowering transaction costs, and preventing the buildup of large cash surpluses. This capital could then be used to settle payments with other countries on the network, withdrawn, or invested in BRICS government bonds.  

At the same time, additional liquidity would be made available via swop lines, allowing central banks to exchange their respective currencies for a specified duration to account for any seasonal fluctuations in trade volumes. 

A fractured global economy is not in India’s economic interests and the country has made great diplomatic efforts to avoid this outcome. Instead of taking sides, New Delhi has chosen a higher path, reaching mutually beneficial trade agreements with the West while continuing to develop payment solutions with its BRICS partners.