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China and India are on the cusp of becoming two of the world’s top three economies. Various economic surveys have predicted that while China can emerge as the world’s leading economy, India has the potential to become the third-largest economy by 2020.

Sino-Indian relations have always bordered on mistrust because of outstanding border disputes, an unfortunate historical legacy. India, after the debacle of a brief war with China in 1962, has been cautious when dealing with its neighbor. India has always approached the “China threat” with timidity.

One of the reasons for underplaying the threat is probably a lack of military preparedness. It certainly didn’t help that a former Indian defense minister, in a government led by the Congress party, brought the purchase of all critical military equipment to a virtual halt, as he was afraid of sullying his image. Previously, India had been rocked by scandals — large-scale kickbacks involving important players at the time of defense purchases.

However, with Narendra Modi as India’s prime minister, the country now seems to be more confident in dealing with China. Under Modi’s leadership, a two-pronged strategy has evolved: India is continuing to engage with its neighbors while at the same time taking steps to modernize its armed forces.

A few recent developments in the region have become a cause for concern in India. The U.S. Department of Defense, in the 2016 edition of its annual report on military and security developments involving China, expressed concern about the sudden increase of Chinese troops near the Indian border. The report also mentioned that China, with the connivance of Pakistan, has set up a base in Pakistan-occupied Kashmir.

India has viewed these developments, and also China’s investments in Pakistan, Sri Lanka, Bangladesh, Myanmar and Nepal, with concern. Together, China’s actions are seen as a deliberate attempt to encircle India.

For its part, India is reaching out to its neighbors to prevent any change in their foreign policy that results in a bias toward China, as India has maintained healthy and cordial relations with all its neighbors except Pakistan.

In another worrying development, China managed to block India’s membership in the Nuclear Supplier Group, in spite of the overwhelming support that India received from most members, including the United States, Russia, the United Kingdom, France and Germany. That maneuver has not gone down well with India, especially as China’s interference came just when Sino-Indian relations seemed to be improving after an exchange of visits by their top leaders. Modi and Chinese President Xi Jinping appeared to have developed a personal chemistry, and they had pledged to work closely to improve the bilateral relationship.

China watchers know that Beijing has always been guided by self-interest when it comes to foreign policy. China’s support for Pakistan in particular — supplying it with defense equipment, investing in ports, building nuclear reactors and, above all, supplying Islamabad with nuclear material in contravention of the Nuclear Non-Proliferation Treaty — has the potential to destabilize peace in the region.

China’s other foreign policy decisions of late follow a similar pattern of seeking self-interest at the cost of regional peace. Beijing has been aggressively pursuing reclamation projects in the disputed islands and reefs in the South China Sea in spite of protests by Vietnam, Malaysia and the Philippines. The Philippines took the matter to an arbitral tribunal to challenge China’s actions. In response, China not only questioned the court’s jurisdiction in the dispute but also refused to participate in the hearings.

The arbitral tribunal, selected by the Permanent Court of Arbitration in The Hague, ruled in the Philippines’ favor. In a landmark judgment, the arbitration court has ruled that China had no historical claim over the waters of the South China Sea, and, therefore, it has violated the Philippines’ sovereign rights in its exclusive economic zone. The tribunal further held that Chinese law enforcement vessels had unlawfully created a serious risk of collision when they physically obstructed Philippine vessels from accessing disputed waters.

The U.S., unhappy with China’s aggressive designs to develop the disputed islands, had twice sent warships close to Chinese-held features in the Spratlys in the South China Sea. Washington wants to send a clear message to China to stop its illegal attempts to capture the disputed areas.

The U.S. has also approached India to participate in a joint naval exercise in the South China Sea in order to dissuade China from pursuing its aggressive designs in the region. The U.S. wants to form a coalition by bringing India, Japan and others on board to put pressure on China.

India realizes that no economic development can take place in the absence of overall peace in the region. It is for this reason that it has so far refused to align with the U.S. to counter China, as New Delhi feels such a strategy may prove counterproductive.

Moreover, India does not want to open another front with China, as it is already preoccupied with dealing with its hostile neighbor on its western border. India shares a 4,057-long-km border with China; except for a few stray incidents at the instigation of Chinese soldiers, the border has remained relatively peaceful since the 1962 war.

Under Modi’s leadership, India has taken effective steps in securing its borders with both China and Pakistan by deploying more troops and equipping them with modern weapons. There is a growing realization both in China and Pakistan that India now has an assertive leader who will not brook any nonsense.

China is wary of any strategic alliance between the U.S. and India. As a result, Beijing recently sent its foreign minister, Wang Yi, to New Delhi to persuade India to not to get entangled in the South China Sea dispute. In return, China has hinted that it is open to reconsidering India’s membership in the Nuclear Supplier Group.

India needs to be aware of the changing realities in the region. The best response is to modernize its armed forces to be ready for any eventuality, but at the same time continue to engage with its neighbors. The political leadership in India, so far, has avoided aligning with the U.S. or Japan to counter China, as it feels such a strategy would antagonize China, which would not be in India’s best interests. China, for its part, should not view India’s restraint as a sign of weakness.

The ability of India and China to be global powers hinges on forming close economic ties and continuing efforts to engage with one another. This is the only way to improve the trust between the two countries.

In this context, there is an urgent need for New Delhi to recalibrate Indian foreign policy in keeping with the changing geopolitical landscape in the region. It will not be in India’s interests to align with any particular country, and it needs to pursue its own independent foreign policy to avoid any potential conflict in the region.

This is truly a watershed moment for both China and India, as they embark on their journeys to become global powers. It is in their interest to remove mistrust by closely collaborating with one another.

K.S. Venkatachalam is an independent columnist and political commentator. His articles have been featured in many leading newspapers. © The Diplomat, 2016; distributed by Tribune Content Agency

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