The politics of coalition has posed new challenges to India’s foreign policy. This problem becomes particularly evident in India’s neighbourhood, which inevitably becomes intertwined with domestic politics. The rise of regional political parties and their role as coalition partners makes it more difficult for the union government to ignore provincial sentiments. Competitive politics featuring both national and regional political parties provides primacy to local interest as this is linked to the vote bank politics. Given the fact that coalition politics has become a reality, this article analyses how to engage the states and make them stakeholders in furthering India’s neighbourhood policy.