India’s new Prime Minister Narendra Modi faces many foreign policy challenges, including relations with his country’s longtime rival, Pakistan.  Regional analysts say there is great potential for trade and cultural exchanges between the two countries, but the issue that will determine future relations between New Delhi and Islamabad will be terrorism.  

The South Asian region of India and Pakistan is home to nearly 1.4 billion people with great potential for economic growth. But instead of capitalizing on this potential - the two nuclear-armed nations have seen tensions rise in recent years particularly over the disputed region of Kashmir and the November 2008 terrorist attacks in India's financial hub Mumbai.
The Heritage Foundation's Lisa Curtis says despite renewed hopes of peace with a new Indian government, another terrorist act could easily derail the peace process.

"If there is some kind of major terrorist attack in India, I think we can expect a tougher response from a Modi-led government than we saw under Manmohan Singh [former Indian prime minister].  I think Manmohan Singh went out of his way to try to have peace with Pakistan.  Some people would say he expressed too much forbearance towards Pakistan, particularly after the 2008 Mumbai attacks," said Curtis.

Pakistan-based militants killed 166 people during the three-day siege, and then-Prime Minister Manmohan Singh alleged the Pakistani government supported the terrorists.  Islamabad denied any involvement.

The Brookings Institution’s Michael O’Hanlon says both countries should move past what happened.

"This is a moment and opportunity where we have to be willing and hope our Indian and Pakistani friends are willing to move forward and not just keep remembering and reciting the past transgressions but see an opportunity for two great nations on this earth to find a way to cooperate.  So, this is a new opportunity and if they can focus on their common agenda in building a strong South Asian economic zone, I think, all things are possible," said O’Hanlon.

There are religious and nationalist extremist groups on both sides of the border who favor a tough approach over friendly relations.  Since India and Pakistan have fought three wars since their 1947 independence from Britain, analyst Lisa Curtis says the militaries - particularly Pakistan's army, may hold sway on bilateral ties.

"Even if both civilian leaders have an interest in moving forward, there’s simply other issues at play, and that is the military role, particularly the Pakistan military role and where they want relations to go," she said.

Still, analysts say with cultural exchanges, stronger trade ties and people-to -people contacts, Islamabad and New Delhi can together capitalize on the growing potential of the region.