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Political Risk Report – India Snapshot

Political Risk Report – India Snapshot

13/05/2026 · 5 minute read

Ongoing diversification

As India advances through 2026, its political risk environment reflects a complex interplay of global economic realignments, evolving trade relationships, and domestic policy shifts that may directly impact business operations, trade finance, and investment flows.

Geopolitical fragmentation and supply chain risks

Indian companies are increasingly attentive to political risks beyond domestic borders, particularly in regions where they have significant investments. Indian businesses are major investors in Saudi Arabia's Vision 2030 initiatives, with 85% of Indian businesses viewing the Kingdom as an attractive investment destination across technology, infrastructure, agriculture, and healthcare. Concerns about geopolitical uncertainties and regulatory shifts affecting Indian businesses operating there have led to heightened inquiries from Indian firms about political risk insurance.

Sovereign default risks in South American countries present another layer of complexity for Indian investors and exporters. Political instability and economic volatility in these markets can disrupt trade flows and financial commitments, prompting Indian companies to seek enhanced protection through trade credit insurance and political risk coverage.

Political changes in neighboring countries, including Sri Lanka, Bangladesh, Myanmar, and Afghanistan, have also introduced security, economic, and strategic uncertainties. The volatile Bangladesh political situation adds uncertainty for textile and manufacturing supply chains. These developments make it key for Indian businesses to maintain vigilant risk assessments and adapt their strategies to shifting political landscapes.

In 2026, India will continue a complex balancing act, seeking to maintain its strategic partnership with the US while leading the BRICS amid pressure from the US to reduce ties with China and Russia.

The 2026 conflict in the Middle East poses economic risks for India, including higher oil prices, insurance costs , and shipping fees, which threaten its energy imports and petroleum refinery product exports a sector heavily dependent on crude supply from the Gulf.

In 2025, India imported over US$100 billion worth of goods from the Middle East, including essential fertilizers . This dependence exposes key sectors such as agriculture, plastics, and construction to potential supply disruptions. Additionally, the conflict endangers remittance flows from over 9 million Indian nationals in Gulf countries: In 2025, India received approximately US$51.4 billion in remittances originating from the Gulf, making it a critical contributor to the country’s balance of payments.

Trade credit insurance growth

Reflecting these geopolitical challenges, the demand for trade credit insurance in India has surged. In 2025, Marsh Risk India reported a 32% growth in the number of policies placed. This trend highlights Indian companies’ increasingly proactive approach to safeguarding their trade receivables and managing exposure to political and economic risks in volatile markets. Meanwhile, India’s push for rupee internationalization and bilateral settlement mechanisms with trading partners such as Russia and the UAE may create currency-mismatch risks for companies engaged in cross-border trade.

Gift City: India’s emerging financial hub

A significant development in India’s political risk landscape is the growth of Gift City (Gujarat International Finance Tec-City), which is rapidly gaining traction as a global financial hub. Recent regulatory reforms and increased government support have enhanced Gift City’s attractiveness to banks, financial institutions, and multinational corporations.

Trade deals: Opportunities and uncertainties

India’s approach to multilateral and bilateral trade agreements reflects domestic political sensitivities around agriculture, manufacturing protection, and data localization. India has signed ten free-trade agreements (FTAs) since 2014, signaling a pivot from its previous protectionist stance and creating potential opportunities for textiles, pharmaceuticals, chemicals, and agricultural exports.

The recent trade deal with the European Union creating the world's largest free trade zone marked a milestone in formalizing a long-standing economic relationship. The deal is expected to boost trade in areas where India has competitive advantages, such as chemicals, pharmaceuticals, and renewable energy. These sectors could see increased project implementation and investment flows, creating new opportunities for Indian companies and their global partners. In addition, agreements with the UK, Oman, New Zealand, and the US, are reflective of some of the opportunities in India’s fast-growing economy.

Tariff-related uncertainty in 2025 contributed to several economic challenges for India, including a widening trade deficit, depreciation of the rupee, capital outflows, and a decline in exports to the US across key job-creating sectors such as textiles, seafood, and jewelry. The recent India-US trade deal, which saw the lowering of tariffs from 50% to 18% brings the rate more in line with India's peers in Asia. Several US tech companies have announced investment commitments in India, with much of this in data centers.

The 2026 political calendar features key state elections that are shaping the landscape, with the BJP party looking to retain or expand its majority. Several Indian companies in export-oriented sectors may face uncertainty about preferential access and tariff structures that could change based on political outcomes.

Strategic considerations

Monitor geopolitical exposures

Stay informed on risks related to Indian investments in Saudi Arabia, Latin America, and neighboring countries to anticipate potential disruptions.

Consider trade credit and political risk insurance

Use insurance solutions programs to protect against payment defaults and political uncertainties.

Explore Gift City opportunities

Consider the benefits of operating within Gift City’s evolving financial ecosystem to enhance market access and regulatory efficiency.

Assess trade deal implications

Evaluate sector-specific impacts of the recent trade agreements to identify growth areas and potential risk factors.

Report

Political risk report 2026

Your guide to navigating the political and economic risk landscape in 2026.

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