India, US sync on trade, tariffs

US president Donald Trump on Monday said that he and Prime Minister Narendra Modi have agreed to a trade deal between India and the US, nearly a year after the two sides agreed to work towards a comprehensive bilateral trade agreement.

Under the deal, Washington would lower its reciprocal tariff on Indian goods from 25% to 18%, while India would reduce its tariffs and non-tariff barriers against the US to zero, Trump said. US is also removing the extra 25% duty on Indian goods applied in response to India’s purchases of crude from Russia, Bloomberg reported, citing officials familiar with the matter.

In his social media post, Trump said he spoke to Modi earlier in the day and that the agreement was reached “effective immediately”. The two leaders discussed a range of issues, including trade and efforts to end the war between Russia and Ukraine, he claimed. Trump also said that Modi had agreed to stop India's Russian oil purchases, and instead buy more energy from the US and, potentially, Venezuela. The US president said India would buy more than $500 billion worth of US energy, technology, agricultural products, coal and other goods, and commit to 'Buy American' at a much higher level.

Prime Minister Narendra Modi said in a post on X, “Wonderful to speak with my dear friend President Donald Trump today. Delighted that Made in India products will now have a reduced tariff of 18%. Big thanks to President Trump on behalf of the 1.4 billion people of India for this wonderful announcement.”

“When two large economies and the world’s largest democracies work together, it benefits our people and unlocks immense opportunities for mutually beneficial cooperation. President Trump’s leadership is vital for global peace, stability and prosperity, and India fully supports his efforts for peace. I look forward to working closely with him to take our partnership to unprecedented heights,” said PM Modi in his post on X.

At 11:40pm India time, the SGX Nifty was up 2.6%. SGX Nifty—now Gift Nifty—is an overseas futures contract linked to the Nifty 50, which trades longer hours than NSE, and is used as an early indicator of how Indian markets may open.

"The India-US trade deal has gone through ups-and-downs like a roller coaster. While devil is in the details, it removes a hanging sword over rupee, equity and rates market,” said Nilesh Shah, MD of Kotak Mahindra AMC.

'Thrilled'

US ambassador to India Sergio Gor said in a post on X, "As I have said many times, President Trump genuinely considers Prime Minister Modi a great friend! Thrilled by the news of the trade deal this evening. The relationship between the United States and India has LIMITLESS POTENTIAL!"

Confederation of Indian Textile Industry (CITI) chairman Ashwin Chandran said, “The move would help Indian textile and apparel exporters regain competitiveness in the US market, India’s single largest destination for such exports.”

“While we await the final text of the deal, indications suggest that the additional punitive 25% tariff risk has been removed and the base tariff has been reduced from 25% to 18%. This brings India broadly in line with its Asian peers on tariff rates, at the very least removing the earlier unfair and disproportionate drag on exports and, by extension, the rupee,” said Madhavi Arora, chief economist at Emkay Global Financial Services.

There are no incremental advantages or preferential placements vis-à-vis Asian peers, but restoring a level playing field is a meaningful reset point from a trade perspective, said Arora.

Welcoming the move, Colin Shah, managing director, Kama Jewelry, said, “The slashing of the reciprocal tariff to 18% comes as a great relief for the Indian gems and jewellery sector. The US has been a key consumer market for Indian gems and jewellery, and sentiment had been hit by the tariff implications. This partial relaxation will help restore confidence among Indian jewellery manufacturers and exporters, as well as buyers in the American market.”

On 13 February, 2025, a joint statement issued during Modi’s visit to Washington had said the two countries agreed to work towards a trade pact. Since then, negotiations have continued amid strains triggered by Washington’s steep tariff hikes on Indian exports. US tariffs on most Indian goods now stand at 50%, including a 25% punitive tariff for New Delhi's Russian oil purchases.

The proposed 18% tariff on India would be lower than or comparable to several South and Southeast Asian countries, including Bangladesh (20%), Sri Lanka (20%) and Vietnam (20%). It would be slightly higher than tariffs faced by more developed economies such as Japan (15%) and South Korea (15%) under negotiated frameworks.

Other regional peers, including Indonesia, Cambodia, Malaysia, Pakistan, the Philippines and Thailand, are subject to reciprocal tariffs of around 19%. In contrast, China continues to face much steeper duties, with average US tariffs on Chinese exports now standing at 47.5%.

The timing of Trump's announcement is also notable as it follows India’s Union Budget for fiscal year 2027 (FY27), parts of which sought to address challenges arising from higher US tariffs, and comes days after New Delhi announced the conclusion of negotiations for what it described as the “mother of all trade deals” with the European Union on 27 January, underscoring India’s push to lock in major trade pacts with key partners.

Trump and Modi have spoken multiple times since last summer, including during Modi’s Washington visit. In their last publicly acknowledged call in December 2025, the two leaders reviewed progress in bilateral ties and discussed expanding cooperation in areas such as trade, critical technologies, energy, defence and security.

Exports

Exports to the US, India’s largest overseas market, rose month-on-month in December, indicating that demand held up despite higher tariffs, even as exporters faced pricing and margin pressures. Exports in December rose to $7.01 billion from $6.98 billion in November despite stiff tariffs. Shipments in the first nine months (April–December) of the current fiscal year also rose about 10% to $65.88 billion.

Bilateral goods trade between India and the US stood at $105.31 billion during April-December, with India recording a trade surplus of $26.45 billion. This compares with bilateral trade of $94.97 billion in the corresponding period of the previous fiscal, when the trade surplus stood at $25.09 billion.

Earlier, in November last year, the US had exempted a group of agricultural and food-related products from the reciprocal tariffs it imposed earlier this year. The 14 November decision removed commodities such as coffee, tea, tropical fruits, spices, cocoa, bananas, tomatoes, beef and certain fertilisers from the 2 April tariff list. These products were to face only normal Most-Favoured-Nation (MFN) duties, instead of the higher reciprocal tariffs of up to 50%.

About 30% of India’s exports to the US, including electronics, energy products and medicines, have been kept outside the tariff net. In contrast, labour-intensive sectors such as textiles, gems and jewellery, and seafood are bearing the brunt of the 50% tariff that came into effect on 27 August.