The 'Strategic Survey 2016: The Annual Review of World Affairs' by the International Institute for Strategic Studies (IISS) said India's relations with Pakistan and Nepal had deteriorated in the past year but China remained a primary concern because of its assertiveness on the border dispute.
"For policymakers in New Delhi, this created fears of encirclement and hardened their attitude towards Beijing, even as China continued to be India's largest trading partner, and [Prime Minister] Modi sought to establish stronger trade and investment links with Beijing," the report said.
The report said: "India's major security threat remained the terrorism emanating from Pakistan, on which Modi took a tougher position than his predecessor.
"As ever, the main driver of Pakistan's security policy was its rivalry with India. This consideration trumped all other factors."
The survey also felt India's "neighbourhood first" policy had not paid off beyond Bangladesh and Bhutan.
"This was due to the complex domestic politics of countries in the region, their historical suspicion of India as the dominant regional power, the influence of India domestic and ethnic politics, and increasing Chinese engagement with the region," it said.
"While his efforts had the immediate effect of raising India's global profile and emphasising his commitment to diaspora communities, they centred on substantive policies designed to strengthen the country's economy. And Modi appeared to be succeeding: India's GDP grew by 7.6 per cent in 2015-16, a rate higher than that of any other large country," the report says.
On a global level, it concludes that "rising populism and intractable conflict" shook the international system in the year to mid-2016.
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