ABSTRACT The 21st century is marked by the intensifying great power competition between the US and China in South Asia and the Indian Ocean. This antagonism serves as a pivotal force for the regional states creating both opportunities and risks for them. While strengthening India’s strategic position, the mutually beneficial relationship between the US and India has consequences for the larger strategic balance in South Asia. This strategic alignment affects these states’ foreign policy as well as their domestic politics since the US’s exemptions give them more confidence to pursue not only humanitarian crisis within state but also expand its international networks of transnational terrorism. This evident strategic shift presents serious challenges to the current order in South Asia. The paper is analyzed through the theoretical underpinnings of impunity, highlighting the consequences of exemption given to the state on its aggressive posture resultantly led to institutionalization of those policies. This study shed light on how impunity given to state has implication on its strategic behavior.