Mistrust to Partnership: India-US Relations Through the Lens of Game Theory

Introduction

The evolution of relations between India and the United States portrays a complex interchange of strategic interests, historical legacies and shifting global power dynamics. Once marked by mutual suspicion during the Cold War, the bilateral relationship has undergone major transformation through the decades, driven by economic liberalization, shared security concerns and a growing convergence in geopolitical outlook. However, despite having deepend ties in areas such as defence, trade and technology, there remain recurring instances of policy divergences, ranging from sanctions under the Countering America’s Adversaries Through Sanctions Act (CAATSA) to trade disputes at the World Trade Organization (WTO) goes out to show the fragile nature of strategic trust between the two nations. Occurrence of such situations, raise a fundamental question, that is can India and the United States sustain long-term cooperation despite periodic defections, or will trust deficits continue to hinder their strategic alignment.

A critical factor for this analysis is the role of institutional mechanisms, diplomatic dialogues and strategic recalibration in mitigating trust deficits. While security cooperation among the two states has deepened with time due to the defence deals like BECA (Basic Exchange and Cooperation Agreement) and interoperability exercises like Malabar, economic and technological tensions remain the two areas where friction still prevails. The challenge for both nations, however, lies in sustaining a strong sense cooperation in the ongoing age of global uncertainty, where short-term divergences can have long-term implications for strategic alignment. This study hence, by applying an IPD framework to the historical and contemporary engagements between India and the United States, like 2005 Indo-US Civil Nuclear Agreement, the expansion of the QUAD, and tensions over defence procurement, seeks to provide insights into the developing nature of their partnership and the conditions necessary for long-term trust-building.

Game Theory and Its Application

Game theory is a mathematical framework used to model strategic interactions between rational decision-makers. It analyses how individuals or states make choices based on the actions and expected responses of others. Game theory helps explain cooperation, conflict, and negotiation in various fields, including economics, political science, and international relations. In the scenario of international politics, game theory is especially used in understanding how states interact under conditions of uncertainty and competition. States, like players in a game, must decide whether to cooperate or act in self-interest, considering how their counterparts might respond.

This paper applies game theory and specifically the Iterated Prisoner's Dilemma (IPD) to analyse the relations between India and the United States. The IPD further extends the traditional Prisoner’s Dilemma by incorporating the factor of repeated interactions, wherein states have the incentive to build trust over a period of time because of having repeated interactions. A key factor in IPD is the “shadow of the future” or the concept according to which the expectation of future interactions is what discourages short-term defection. Strategies like Tit-for-Tat (reciprocating cooperation or defection) and Grim Trigger (permanently punishing defections) can help explain India-US diplomatic patterns in a better way.

Relations between India and the United States often face distinct scenarios of cooperation and defection. Cooperation constantly occurs in areas like defence technology transfer, joint military exercises and regional security efforts. These areas of alignment often reflect the shared interest of both nations, particularly when they encounter common threats, such as the rise of China. Cooperation also leads to enhanced security and economic benefits for both the sides. For instance, agreements like the LEMOA (Logistics Exchange Memorandum of Agreement) and the COMCASA (Communications Compatibility and Security Agreement) have strengthened their defence cooperation, resulting in positive payoffs for both sides.

However, scenarios of defection arise when one side pursues actions that undermine the other side’s interest, such as when the US imposes CAATSA sanctions on India for purchasing the S-400 missile system from Russia. In such an instance, India’s decision to align with Russia over the United States triggered a defection, which led to diplomatic and strategic tensions between the two states.

The Iterated Prisoner's Dilemma framework perhaps suggests that despite of such defections, there is a strong incentive for both nations to return to cooperation, as with all iterated games, the prospect of future rounds incentivises both parties to engage in trust-building behaviours, since long-term benefits of cooperation outweigh the short-term losses caused because of defection. The theory hence explains the ongoing attempts by both India and the United States to resolve their differences, such as the efforts to address trade tariffs and security issues, and why these tensions are often followed by attempts to recalibrate their relationship.

Background:

The contemporary relations between India and the United States have been shaped by the shifting global power structures, ideological differences and strategic recalibrations over time. Subsequent to India’s independence in 1947, India pursued a policy of non-alignment, aiming to maintain autonomy in its foreign policy rather than becoming entangled in the ongoing Cold War rivalries. The proposition of holding this position of non-alignment was backed by India’s first Prime Minister, Pandit Jawaharlal Nehru, who sought to establish India as a leader of the Non-Aligned Movement (NAM). However, India’s emphasis on self-reliance and its focus on economic policies which were socialist in nature created a deep-rooted ideological gap between itself and the United States, which viewed non-alignment with suspicion and prioritized alliances that directly countered Soviet influence.

A major point of conflict between India and the United States was America’s close alignment with Pakistan, which was strategically valuable to the United States because to Pakistan’s geographic location and willingness to participate in the Western security alliances. The increasing closeness between the two states made also led to Pakistan becoming a key member of the Central Treaty Organization (CENTO) and the Southeast Asia Treaty Organization (SEATO), both of which sought to counter Soviet influence in Asia. However, as per India’s perspective, this partnership signalled a US policy that was unfavourable to Indian security interests, reinforcing India’s hesitancy towards having closer ties with America. The situation further worsened following the 1962 Sino-Indian War, when India sought military assistance from the United States but later faced renewed American support towards Pakistan leading to the deepened strategic distrust.

The widening of the gap between the two countries increased during the 1970’s when India planned its first nuclear test in 1974 known as the Smiling Buddha. In contrast however, United States, which had long advocated for nuclear non-proliferation, strongly opposed India’s nuclear ambitions by imposing economic and technological sanctions through the Nuclear Suppliers Group (NSG) upon India. This period saw nominal engagement between the two nations, as the United States viewed India’s nuclear program as a factor that led to destabilisation in South Asia, while India perceived US policies as discriminatory and inconsistent, given America’s implict acceptance of China’s nuclear capabilities.

However, the end of the Cold War and India’s economic liberalization in 1991 marked a major turning point in bilateral relations between the two nations. Having faced an economic crisis in 1980’s, India undertook economic reforms under the then Prime Minister P.V. Narasimha Rao and Finance Minister Manmohan Singh, opening its economy to foreign investment and privatising the key industries. As these reforms aligned with the US’s vision of global economic integration, through globalisation, it led to the creation of a new foundation for engagement between the two nations. The United States since began to recognise India as a potential economic partner and a strategic counterbalance to China’s growing influence in the Asian region.

Another critical infliction point came in 1990’s, when India conducted a second round of nuclear tests called Operation Shakti in 1998. While these tests initially led to strong denunciation and economic sanctions from the United States, under the Glenn Amendment, the strategic justification for engaging India soon outweighed its penal measures. It was then in the early 2000’s, America began reassessing its South Asia policy, recognising that isolating India would push it closer to Russia and China, which translated into greater risks for America. The diplomatic turnaround, was hence culminated in the 2005 India-US Civil Nuclear Agreement, which signalled for a fundamental shift in United States non-proliferation policy. Making it the first time, when United States extended recognition to India as a responsible nuclear power, granting it access to civilian nuclear technology despite its status outside the Non-Proliferation Treaty (NPT). This deal not only led to the strengthening of strategic trust but also paved the way for enhanced defence and economic cooperation.

It could be hence said that while initial interactions were characterized by strategic mistrust and policy divergences, the post-Cold War era has seen a continual deepening of cooperation, setting the stage for contemporary relations between India and the United States in the 21st century.

However, ever since 2005, the relations between India and United States have undergone major transformations, marked by deeper strategic partnership in defence, trade and technological cooperation. This shift has been largely driven by mutual recognition of shared security interests, ever advancing global power structures and economic interdependence upon each other. The signing of the 2005 India-US Civil Nuclear Agreement also acted as a critical moment for the bilateral relations between both countries as it symbolised the end of decades of mistrust and opening the door for closer military and economic cooperation. Following this agreement, both nations steadily expanded their security and defence collaborations, cementing their partnership through a series of foundational agreements that supplement greater interoperability, intelligence-sharing, and joint military operations.

A momentous milestone in this strategic shift has been marked by the signing of four key defence agreements that include, Logistics Exchange Memorandum of Agreement (LEMOA) signed in 2016, which allows the militaries of both nations to access each other’s bases for refuelling, repairs and supplies, thereby enhancing operational coordination in the Indo-Pacific, Communications Compatibility and Security Agreement (COMCASA) signed in 2018, which assists the transfer of advanced communication technology and secure encrypted systems, enabling smooth coordination between Indian and US military assets and Basic Exchange and Cooperation Agreement (BECA) signed in 2020, granting India access to high-end geospatial intelligence from US satellites, this agreement exponentially enhances India’s targeting and navigation capabilities for military operations.

These agreements, in totality, represent a broad shift in India’s defence posture, signalling towards willingness to engage in deeper security cooperation while maintaining its strategic autonomy. These agreements have also greatly contributed towards India’s increasing participation in joint military exercises, including the Malabar naval exercise, which now features the US, India, Japan, and Australia, acting as an informal military grouping aimed at countering China's growing influence in the Indo-Pacific. The regularity and scope of these military engagements, hence accentuate the strategic realignment between India and the United States, that is driven by the recognition of maintaining a free and open Indo-Pacific as a shared priority.

Parallel to the defence cooperation, economic engagements between the two countries have grown profoundly. The United States has come up to be as one of India’s largest trading partners, with bilateral trade between the two countries surpassing $191 billion in 2022. Addedly, the American companies play an integral role in India's technology and start-up ecosystem, with Silicon Valley giants such as Google, Apple and Microsoft making substantial investments in India’s digital infrastructure. Such investments have led to the rise of India as a major hub for semiconductor manufacturing and artificial intelligence research further strengthening economic linkages with the United States firms leading to reduced dependence on Chinese supply chains by deepening technological cooperation with India. Initiatives like the India-US Initiative on Critical and Emerging Technology (iCET) aim to expand collaboration in the sectors of artificial intelligence, quantum computing, space technology and semiconductor manufacturing.

In spite of these positive movements, the strategic shift between the two states has not been free of complications. While India has constantly welcomed foreign direct investments and defence collaboration from the United States, yet it remains committed to its policy of strategic autonomy, assuring that its partnerships with the United States does not come at the expense of other long-standing relationships, particularly with that of Russia. When talking about the prevalent complications, the United States has condemned India’s protectionist policies under the Atmanirbhar Bharat (Self-Reliant India) initiative, which aims to increase domestic manufacturing by limiting foreign competition. Responding to that, India has also pushed back against United States’ demands for greater market access, particularly in sectors such as pharmaceuticals and digital trade. These economic tensions, have amplified due to periodic imposition of tariffs and retaliatory measures, adding to the difficulty of establishing a stable and predictable trade relationship, leading to occasional friction, particularly regarding market access and trade barriers. The relations currently prevailing, however, indicate a period of long-term reassessment of policies, wherein both the nations understand the requirement for cooperation in an increasingly multipolar world and keep aside their individualistic differences, while dealing bilaterally.

While India and the United States have undertaken remarkable steps in their strategic and economic partnership, their relationship remains filled with challenges that complicate long-term trust and alignment. A central factor influencing this partnership between the two is the rise of China, whose increasing assertiveness in the Indo-Pacific has shaped cooperation between India and the United States, while introducing serious complexities. The United States views China primarily as a strategic competitor and has followed policies aimed at countering its influence through different initiatives such as the Indo-Pacific Strategy and the strengthening of the Quadrilateral Security Dialogue (QUAD). India also has serious security concerns regarding China, particularly in the sectors of tensions regarding border security along the Line of Actual Control (LAC), competition in regional infrastructure projects and China’s growing naval presence in the Indian Ocean. It is because of these shared concerns regarding China that have led to greater military coordination between the two states. India, however, remains mindful about the degree of its alignment with the security architecture of the United States, keeping in mind, its historical commitment to strategic autonomy.

Another complicating factor is India's longstanding defence relationship with Russia. Despite growing US-India military ties, India continues to depend on Russian defence technology, as evidenced by its purchase of the S-400 missile defence system. This decision could have triggered the threat of sanctions under the US’s Countering America’s Adversaries Through Sanctions Act (CAATSA), underlining the friction between India’s strategic priorities and American foreign policy. While America has refrained from imposing strict penalties as of yet, the episode presents us with the greater question of how can India modernize its military through diversified partnerships while avoiding dependence on any single power.

Literature Review

The relationship between India and the United States has been studied substantially from a variety of perspectives, with scholars often turning to game theory and international relations theory to understand the mechanisms of cooperation and conflict with respect to their strategic ties. This literature review aims at fusing the different key works from the fields of game theory, realist and liberal perspectives and economic analyses, with an emphasis on the Iterated Prisoner's Dilemma (IPD) framework.

While talking about Game Theory and International Relations, [i] Robert Axelrod's work on the Iterated Prisoner's Dilemma is foundational to understand the dynamics of cooperation and defection in international relations. Axelrod’s research demonstrated that in repeated interactions, even selfish actors could cooperate if the payoff for cooperation outweighed the immediate gains of defection. This insight is important for understanding the relations between India and the United States, where repeated cooperative efforts in defence and trade have been challenged by periodic defections (e.g., sanctions, trade tariffs, security disagreements). Axelrod's work has been widely cited in the study of international diplomacy, providing a theoretical framework for understanding how states balance short-term conflicts while keeping in mind long-term cooperation.

If we look at it from a realist perspective, scholars like John Mearsheimer asserts that [ii] states primarily act in their self-interest, seeking power and ensuring their security. However, in accordance to realism, this bilateral partnership between India and the United States is shaped by the requirement for both nations to counterbalance China in the Indo-Pacific. This power-based struggle between the two states does not only lead to strategic cooperation but sometimes also tends to bring about tensions, particularly when national interests diverge. This can be seen in India’s dealings with Russia, or the imposition of CAATSA sanctions. For realists, this relationship can never be fully stable, as states in the end are competitors and cooperation is always contingent on relative gains and power dynamics.

In contrast, [iii] liberal perspectives, notably those of Keohane and Nye, primarily focus on institutions and interdependence as mechanisms for promoting cooperation. According to liberal scholars, institutions such as the QUAD, the 2+2 dialogues, and trade agreements promote greater cooperation between states by creating frameworks that help extenuate mistrust and encourage mutually beneficial exchanges. The partnership between India and the United States aligns with this view, particularly when both countries participate in multilateral forums where cooperation in trade, technology transfer and security collaboration is the primary goal.

The economic aspects of the relation between India and the United States have also been deeply studied, with scholars like Jagdish Bhagwati and Arvind Panagariya investigating the trade liberalization policies that have reshaped India’s economic environment since the 1991 reforms. [iv] While both countries have benefited from closer economic ties, disagreements persist, particularly over issues such as WTO negotiations and intellectual property rights. These conflicts depict the economic tensions present in the India-US relationship, where trade barriers often result in defection, especially when domestic interests conflict with international obligations.

Research Questions

1.    How does the Iterated Prisoners Dilemma explain the patterns of cooperation and defection in the relations between India and the United States? and what impact do these patterns have on strategic trust

2.    How do economic, military, and technological collaborations between India and the United States reflect the dynamics of strategic trust-building in an evolving multipolar world?

Hypothesis

If India and the United States engage in repeated cooperation in the sectors of defence, trade and technology through diplomacy, the trust between the two countries would deepen leading to long term strategic alignment. However, frequent defections such as economic sanctions or security disagreements would aid towards eroding of trust between the two states, resulting in strategic distancing or realignment. 

Thus, the hypothesis argues that relations between India and the United States are shaped by continuous cycles of strategic cooperation and defection, where constant diplomatic engagement, economic flexibility and adaptive security alignments between the two states would help determine the long-term trust equilibrium, according to which, a stable state of relation emerges when states maintain trust in each other even when they are facing potential risks. Hence, If both nations prioritise institutionalised cooperation over short-term strategic divergences, the relationship will gradually stabilise into a mutually beneficial one, reaching the point of a Nash equilibrium or a situation in which a player will continue with their chosen strategy, as it would have no incentive to deviate from it, leading to reinforcement of long-term strategic trust.

Conclusion and Way Forwad

The India-US relationship portrays the situations of the Iterated Prisoner’s Dilemma (IPD), in a way where cooperation and defection occur repeatedly based on varying strategic interests. Over a period of time, both countries have formed institutional mechanisms to promote trust, yet there are times when tensions arise due to competing national priorities. Inspite, experiencing cases of defection, like the CAATSA sanctions on India and various trade disputes, the motivation for long-term cooperation remains strong due to shared geopolitical and economic interests of both the nations.

Security cooperation remains an essential aspect of engagement between the two states, prevalent in the Indo-Pacific strategy, QUAD alliance and key defence agreements like LEMOA and COMCASA. However, India's commitment to strategic autonomy has led to moments of defection too. A case that depicts so can be the S-400 purchase from Russia, which triggered United States’ sanctions towards India. These interactions illustrate how short-term strategic gains can disrupt trust but rarely lead to permanent breakdowns.

Though growing steadily, economic relations between the two states, face conflicts periodically due to protectionist policies, tariffs and trade disputes. While the United States criticizes India's self-reliance initiatives, India opposes American trade barriers. However, despite these tensions, both countries recognise the benefits of sustained economic engagement, aligning with the IPD’s prediction that cooperation is the more profitable long-term strategy. In addition to this, both states recalibrate strategies to maintain an overall equilibrium of collaboration through trust-building mechanisms such as diplomatic dialogues, high-level summits and multilateral cooperation like QUAD. Hence, it can be concluded that India’s aspirations for strategic autonomy and the US’s aspirations for being a hegemonic power will continue to shape their relations with continuous cycles of defection and cooperation.

The future of relations between India and the United States would therefore depend on their ability to navigate and manage defection while deepening their cooperation in the sector of security, economic and geopolitical domains. There is also a need for diplomatic innovation to address the ongoing issues like CAATSA sanctions, trade disputes and regional tensions, assuring both countries continue to engage with each other in a constructive and mutually beneficial manner. The strengthening of institutional frameworks such as the QUAD and 2+2 dialogues would also play an integral role in managing conflicts and making sure that cooperation prevails over defection in the long run for both the nations. Additionally, policy reforms in areas like trade liberalization, technology exchange and military collaboration will be essential to preserve trust and ensure that the India-US strategic partnership remains resilient in the face of global uncertainties.

These complexities can hence be navigated by the policymakers by using insights gained from the IPD for strengthening long-term incentives that lead to cooperation. Using mechanisms like economic side payments and diplomatic backchanneling could lead to a reduced risk of defection, ensuring a stable and mutually beneficial partnership in a developing global order.

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(The views expressed are those of the author and do not represent the views of CESCUBE)

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