Economy
India, US eye ‘mini’ trade deal before full pact, set aside sensitive issues like immigration policies, IPR
Summary
India's trade surplus with the US is at stake as both nations consider a preliminary deal that could reshape tariffs on vital goods. This strategic negotiation aims to balance domestic interests with international commitments.
New Delhi: As India and the US huddle to finalise the contours of a wide-ranging bilateral trade agreement (BTA), the two sides now appear inclined to ink a preliminary trade agreement first, two people aware of the matter said on the condition of anonymity.
According to the first person, the preliminary agreement is being deliberated while keeping sensitive issues like immigration policies and intellectual property (IP) transfers off the table. As for what may likely be in, tariff concessions have been proposed for lentils, almonds and advanced technology products in the pharmaceutical sector, among others.
Indian negotiators have emphasised a structured reduction in duties, similar to the frameworks established in the country’s recent trade agreements with the UAE, Australia, and the European Free Trade Association (EFTA), the second person cited above said. The agreements have led to significant reduction of trade tariffs across multiple industries and products.
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“These tariff structures align with India’s strategy of balancing domestic industry interests with market access commitments," the second person said, adding that such an approach allows negotiators to use an established template rather than start from scratch, making it easier to manage expectations.
According to these two people, discussions have taken place on signing a preliminary agreement before a full-fledged BTA is arrived at. The BTA was mentioned in the joint statement issued after Prime Minister Narendra Modi’s meeting with US President Donald Trump on 13 February in Washington. The two leaders had announced plans to negotiate the first tranche of a multi-sector BTA by fall of 2025 (between September and November).
The preliminary agreement being discussed is likely to be signed before that, the first person cited above added.
Queries emailed to spokespersons of the ministries of commerce, external affairs, the US trade representative, US embassy and US commerce department remained unanswered till press time.
The Global Trade Research Initiative (GTRI), a trade research organization, has suggested that India should avoid pursuing a full-fledged free-trade agreement (FTA) with the US.
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GTRI’s founder Ajay Srivastava said Trump’s decision to impose 25% tariffs on Mexico and Canada despite finalizing the United States-Mexico-Canada Agreement (USMCA) reflects his scepticism toward FTAs.
“The US may push India to open government procurement to American firms, reduce agricultural subsidies, weaken patent protections by allowing evergreening, and lift restrictions on data flows, which India has consistently opposed," said Srivastava. Evergreening in this context refers to the practice of extending the patent life of a product by making minor modifications to extend their exclusivity period and delay the entry of generic competitors.
Additionally, there are no significant gains for India in the services sector, as the US is tightening visa rules for professionals, he added.
The current tariff situation
Meanwhile, the implementation of the US’s 25% tariff on Indian steel and aluminium is slated to be announced on 12 March, while the reciprocal tariff plan will be announced on 2 April. Reciprocal tariffs refer to Trump’s repeated assertions that the US would apply the same duties as India does on bilateral trade of all products across sectors.
To be sure, India has revised tariffs on several US products to address trade concerns. The import duty on bourbon whiskey has been reduced from 150% to 100%. Tariffs on Harley-Davidson motorcycles have been lowered from 50% to 30%. And the duty on ethernet switches has been cut from 20% to 10%.
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At the same time, commerce ministry data shows that import duties on several high-value American products into India are negligible. For instance, in FY24, petroleum crude—the US’s top export to India valued at $5.03 billion—was taxed at ₹1 per tonne, making it one of the lowest-taxed imports despite its high trade value.
Other key exports from the US, including coal (valued at $4.2 billion in FY24), large aircraft ($1.94 billion), and liquefied natural gas ($1.41 billion), face 2.5% tariff.
Earlier, Mint reported on 7 March that the US has demanded tariff concessions on petrochemicals, while India is looking for greater value addition to be done in India—less imports from the US of finished goods and more of raw materials to be processed in India.
At the same time, India’s textile industry has urged the Centre to push for nil tariffs both ways for textile and apparel trade, Mint reported on 8 March.
India-US trade
Trade between the two countries currently shows a healthy surplus for India. India’s merchandise exports to the US in FY24 were $77.52 billion, and imports were $42.19 billion, according to data from the commerce ministry. This fiscal (April to December), India’s exports to the US were $60.04 billion, and imports were $25.75 billion.
And read | Trade talks heat up: US asks for petrochemical concessions, India eyes value chain
With a chunky merchandise trade surplus, India seeks to avoid US tariff hikes on key exports like garments, electronics, engineering goods, and pharmaceuticals.
Exports of these four categories rose from $38.84 billion in FY22 to $46.43 billion in FY24. This fiscal, April-January shipments were at $42.57 billion compared to $36.9 billion in the same period in the previous fiscal.
