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Ethiopia is witnessing new twists and turns both in its domestic and foreign policy domain of late with the incumbent government in power adopting political and economic reforms aimed at fostering changes to bring about development. This has invariably provided an opportunity for India to consolidate its relationship with Ethiopia further. The new domestic political and economic reforms and the friendly gestures that the present government under Abiy Ahmed has made with its neighbors has drawn the attention of the international community to the extent of awarding him with Nobel Peace Prize. Such reform measures of Ethiopia have given India with wide scope to engage itself constructively and extend political and economic support in areas where both countries stand to gain. India's active engagement with Africa in general and Ethiopia in particular is all the more important given the China factor that has been competing with other countries of the region. This paper describes the domestic political developments in Ethiopia during the post Cold War era and its struggle to maintain the intricate ethnic balance that has characterized its nation-building process by tracing it from the days of King Haile Selassie I. It further analyzes the steps taken by the government to remove obstacles to peace and development through adopting economic liberalization measures and foreign policy changes. These are discussed in a chronological manner starting with a conceptual framework and using predominantly secondary sources and relying on personal observations. [ABSTRACT FROM AUTHOR]