As the calendar turns to 2026, India stands at a critical juncture, needing to navigate a world where the old rulebook has expired. The post-Cold War order, which provided a semblance of global direction, is fading not with a single collapse but through a thousand cuts. The year 2025 was marked by fractured trade chains, politicised finance, and rudderless multilateral institutions. For India, the path forward demands discarding outdated maps and forging a new compass built on flexibility, adaptability, and resilience.
The Fractured Landscape of 2025
The past year supercharged great-power rivalries, especially after the leadership change in Washington. The ghost of mercantilism displaced multilateralism, leading to a surge in tariffs from a universal 10% rate to country-specific duties as high as 50%. In response, India pursued Free Trade Agreements (FTAs) with vigour, using trade as a key engine for growth.
Finance became overtly political. Parts of the Global South moved to reduce dollar dependence, a sentiment echoed when China reduced its US Treasury holdings to a 17-year low. BRICS advanced de-dollarisation, pushing financial sovereignty to the centre stage. India promoted rupee settlement mechanisms, enabling trade in rupees with over 22 countries.
War cast a long shadow, with conflicts in Ukraine, Gaza, and Sudan displacing over 12 million people. India pursued cautious diplomacy, with Prime Minister Narendra Modi positioning the nation "on the side of peace," engaging with Moscow, calling for a Gaza ceasefire, and advocating for a two-state solution while condemning terrorism.
On the climate front, a truly existential crisis, insured losses hit $145 billion in 2025, with projections exceeding $300 billion. India accelerated its green transition, achieving 50% non-fossil capacity five years ahead of its Paris NDC commitments.
Six Pillars for India's New Compass in 2026
Facing this world of contradictions, authors and LSE-India Advisory Board co-chairs N.K. Singh and Nicholas Stern propose a new strategic navigation tool built on six core principles.
1. The End of Grand Designs: Embrace Flexible Coalitions
The era of sweeping global agreements is over. The future will see ad-hoc coalitions, partial and temporary agreements. India must deepen issue-based alliances and Global South arrangements, conserving strategic autonomy in a transactional environment while strengthening crisis management capabilities.
2. The New Axis: Demography and Development
The global debate axis is shifting from democracy and development to equally include demography. By 2030, one in six people globally will be over 60. India, with its youth bulge, must transform this into a strength through upskilling, education, and healthcare, while navigating the challenges of migration and cultural ethos.
3. A World Neither at War Nor Peace: Lead Through Multi-Alignment
With an unreformed UN Security Council effectively sidelined, India must continue its multi-alignment strategy. It should diversify defence acquisitions for deterrence, lead security dialogues in the Indo-Pacific and West Asia, and mediate conflicts when larger power institutions fail.
4. Fiscal Discipline in an Era of Debt
Bond markets will discipline advanced economies with shrinking fiscal space. For India, maintaining low inflation is crucial. With nominal GDP growth at 8.7%, meeting the 4.4% fiscal deficit target requires continued discipline. Deeper central bank cooperation could propose a consensus path for reducing global debt.
5. Seizing the Technology Wave
With global AI funding reaching $120 billion in Q3 of 2025, India must scale up investment in AI and quantum computing R&D. Beyond the 2026 Budget, it should strengthen incentives for tech start-ups, expand digital skills programmes, and enforce its AI governance guidelines with robust data protection.
6. Aligning Climate Action with Growth
India must mainstream climate strategy by aligning it with economic growth through electrification, accelerating renewables, electric vehicles, and green hydrogen. Leading the International Solar Alliance can help garner large, productivity-enhancing investments in renewable technology and human capital.
The Way Forward: Harnessing India's Innate Strengths
The new compass points toward exporting value, harnessing the demographic dividend, deepening capital markets, backing frontier technologies, and building sound infrastructure. The way forward lies in sustaining macroeconomic stability and harnessing extraordinary entrepreneurship by freeing land, labour, and capital through Centre-led reforms across states.
Leveraging the multiplier effects of Global Capability Centres (GCCs) is key. India should pursue new, monitorable policies, including a more efficient legal system, to attract larger global investment, enhancing capital availability and productivity.
History did not end in 2025. As 2026 begins, India has a profound opportunity to help shape the emerging world order. Its new strategic compass must intelligently bridge the false divides between democracy, development, and demographics, ensuring the nation not only adapts to the fragmented world but thrives within it.
