Understanding Country Risk in a Changing World: A Strategic Imperative for India

As geopolitical tensions, economic volatility, and institutional uncertainties continue to reshape the global order, the relevance of "country risk" as an analytical lens has never been greater.

- ARUNANSH B. GOSWAMI AND SUMIT KAUSHIK

What was once a niche concern for multinational corporations and global investors is now a central element in both financial strategy and public policy. Country risk, defined as the probability of a country experiencing a crisis or abrupt regime shift due to economic, financial, or political instability, has emerged as an interdisciplinary domain critical for today's decision-makers.

For India, a nation on the cusp of becoming the third-largest economy, understanding and managing country risk is not merely academic—it is a strategic imperative.

For instance, India played an important role in the independence of Bangladesh from Pakistani occupation, and the previous government in Bangladesh, led by Sheikh Hasina, implemented various policies to draw investments from India, which in turn invested significantly in the country. However, her opponents launched a boycott campaign named 'India Out,' targeting Indian products, in response to what they perceived as India's support for her government. The new administration's apparent anti-India stance could negatively impact the Indian business community that has invested in Bangladesh. Trade disruptions or payment delays could negatively impact the profitability and stability of Indian businesses in Bangladesh, particularly in the textile sector, where Indian firms control approximately 25% of the units. Consequently, some manufacturers might opt to relocate back to India due to the ongoing instability.

Historically, regime changes and the promotion of anti-India sentiments by New Delhi's geopolitical rivals in the region harmed India's economic interests in several nations, including the Maldives and Nepal. Therefore, it is crucial for New Delhi to conduct a thorough country risk analysis before undertaking big investment and connectivity projects.