U.S.-India Geopolitical Risks and Investment Implications: Assessing the Impact of Espionage Charges on Bilateral Trade and Security Ties

The U.S.-India strategic partnership has long been characterized by a delicate balance of shared geopolitical interests and economic interdependence. However, recent espionage allegations-most notably the arrest of Indian-American analyst Ashley Tellis and the U.S. indictment of Adani Group executives-have introduced new layers of complexity to this relationship. While these incidents have raised concerns about trust and governance, the broader trajectory of U.S.-India defense and technology collaboration remains resilient, driven by mutual strategic imperatives and evolving economic frameworks.

Espionage Allegations and Immediate Reactions

The arrest of Ashley Tellis, a senior U.S. government adviser with deep expertise on India, in October 2025, underscored the sensitivity of intelligence and defense cooperation between the two nations. Tellis, who had advised on critical initiatives like the U.S.-India Civil Nuclear Agreement, was charged with retaining classified defense documents and meeting with Chinese officials, according to Al Jazeera. This case, while alarming, has not derailed the momentum of U.S.-India defense ties. For instance, the February 2025 India-U.S. Summit reaffirmed a 10-year defense partnership framework, including co-production of Stryker combat vehicles and joint development of AI-based counter-UAV systems, as reported in an InsightsOnIndia summary.

Conversely, the Adani Group scandal-a U.S. indictment of its executives for bribery and stock manipulation-triggered a sharper, albeit sector-specific, shock. The Adani Group's market value plummeted by Rs 2.6 lakh crore post-indictment, disrupting international contracts and raising questions about corporate governance in India, according to a New Indian Express report. While this incident primarily affected the private sector, it indirectly influenced investor sentiment in defense and technology, where trust and regulatory clarity are paramount.

Defense and Technology Collaboration: Resilience Amid Tensions

Despite these challenges, U.S.-India defense cooperation has expanded significantly. The 2022 launch of the U.S.-India Initiative on Critical and Emerging Technology (iCET) has accelerated collaboration in semiconductors, space, and biotechnology, as described in a White House fact sheet. In 2025, the two nations announced plans to co-produce Javelin anti-tank missiles and Stryker infantry combat vehicles, with India's "Make in India" policy facilitating domestic assembly of U.S. platforms like the Apache helicopter, according to a RAND commentary.

The India-U.S. Defense Acceleration Ecosystem (INDUS-X), launched in 2025, further highlights this synergy. By fostering partnerships between startups, academia, and industry, INDUS-X aims to streamline technology transfer and co-development projects, as outlined in the INDUS-X fact sheet. These initiatives reflect a strategic alignment to counter China's influence, with both nations prioritizing interoperability and supply chain resilience.

FDI Trends and Sector-Specific Risks

Foreign direct investment (FDI) in India's defense and technology sectors has shown remarkable growth post-2020. U.S. FDI in India reached $49.56 billion in 2023, with defense and technology accounting for a growing share, according to Statista. India's liberalization of FDI policies-allowing 100% foreign ownership in defense manufacturing under the government approval route-has attracted U.S. firms seeking to diversify supply chains away from China, as noted in a ResearchGate paper.

However, sector-specific risks persist. U.S. defense companies cite concerns over intellectual property (IP) protection and India's historically state-dominated production model, as outlined in a RAND report. Meanwhile, the Adani scandal has heightened scrutiny of corporate governance, potentially deterring investments in sectors reliant on private-sector partnerships. For example, Kenya and Bangladesh suspended projects with the Adani Group, signaling broader uncertainty, as reported by the New Indian Express.

Strategic Alignment and Long-Term Outlook

Historical precedents, such as the 2013 arrest of Indian diplomat Devyani Khobragade, demonstrate that espionage-related tensions often create short-term friction without derailing long-term cooperation, as discussed in an IndianThinkers overview. The current strategic alignment-driven by shared goals in countering China and enhancing military interoperability-suggests a similar trajectory.

For investors, the key takeaway lies in balancing risks with opportunities. While espionage allegations and governance scandals introduce volatility, the U.S.-India partnership's structural strengths-such as India's engineering talent, U.S. technological expertise, and policy reforms like iCET-position the defense and technology sectors for sustained growth. Investors should prioritize projects with clear regulatory frameworks and geopolitical alignment, while remaining vigilant about sector-specific vulnerabilities.

Conclusion

The U.S.-India relationship remains a cornerstone of Indo-Pacific stability, with espionage allegations serving as a reminder of the fragility of trust in geopolitics. Yet, the resilience of defense and technology collaboration, coupled with robust FDI inflows, underscores the enduring appeal of this partnership. For investors, navigating this landscape requires a nuanced understanding of both risks and rewards-a balance that, if managed effectively, could yield substantial returns in the coming decade.