India-US trade deal: CEA Nageswaran says biggest block for FDI inflows removed, 'China+1 strategy back in game’

India-US trade deal: Chief Economic Advisor V Anantha Nageswaran feels that the lowering of the reciprocal tariff to 18% by United States President Donald Trump removes “the biggest stumbling block” for foreign capital inflows into the country, as per an Indian Express report on Tuesday.

“This undoubtedly changes the picture on capital flows. This was the biggest stumbling block for capital flows. This makes a huge, huge difference,” Nageswaran told the paper.

Noting that the reduced tariff rate will “remove all uncertainty”, Nageswaran also said that this allows India to bring the “China + 1 strategy back in the game”.

He said, “The tariff rate removes a huge uncertainty from the minds of both direct and portfolio investors. In terms of foreign direct investment, the China plus one strategy was the one that was going to drive FDI inflows. Now, China+1 is back in the game.” 

What did Donald Trump announce?

Months after the US imposed combined 50% tariffs on India (a 25% reciprocal tariff and a 25% “punishment” tariff for buying Russian oil), Trump said the duty would be reduced to 18%. 

In a post on Truth Social, Trump called Prime Minister Narendra Modi one of his “greatest friends”, adding that India has “agreed to stop buying Russian Oil, and to buy much more from the United States and, potentially, Venezuela”.

“Out of friendship and respect for Prime Minister Modi and, as per his request, effective immediately, we agreed to a Trade Deal between the United States and India, whereby the United States will charge a reduced Reciprocal Tariff, lowering it from 25% to 18%,” he wrote.

Trump claimed that India will stop buying Russian oil, reduce tariffs and non-tariff barriers against the US to zero, and commit to ‘Buy American’ and to $500 billion of US agricultural, coal, energy and technology products. However, while Modi announced on X that the US has cut tariffs on Indian products to 18%, he did not share any details of the deal.

India-US trade deal in sight, markets rejoice

Notably, after prolonged India-US trade deal negotiations, Indian stock markets on Tuesday rejoiced on the announcement. Within the first 15 minutes of trade, the rally translated into a wealth expansion of roughly ₹13 lakh crore for investors. The total market capitalisation of companies listed on the BSE vaulted to ₹468.32 lakh crore, reflecting the intensity and breadth of buying across sectors.

The key benchmark indices — Nifty 50 touching an intraday high of 26,341, up 1,253 points within a few minutes of the Opening Bell. The BSE Sensex also opened up and touched an intraday high of 85,871, with an intraday gain of 4,205 points in the early morning session.

India to gain FPI inflows, “China + 1” advantage? Here's how…

Experts noted that the market jump was due to confirmation of the India-US trade deal, which removed uncertainty for investors and sparked optimism. Echoing Nageswaran, they too expect foreign institutional investors (FIIs) to make a return to the Indian stock market.

Since August 2025, FPIs have withdrawn around $12 billion net from the Indian stock markets. Notably, with additional context on the recent India-EU trade agreement, India now has two of the biggest trading partners locked on deals. This is a likely signal to FPIs that they can return to the market.

Further, when comparing positions for the “China + 1” advantage:

• In Asia, India has the second-lowest tariffs imposed by the US, after only Japan, which has long been a US ally.
• India also overall fared better compared to BRICS counterparts, netting a lower rate compared to banner names — Brazil (50%), China (37%) and South Africa (30%). Trump has been feuding with the leaders — Brazil's President Luiz Inácio Lula da Silva, Chinese President Xi Jinping and South Africa's President Cyril Ramaphosa for some time now.
• It is also positioned favourably against other countries that can claim competition in the ‘China + 1’ race — Vietnam and Bangladesh (20%), Malaysia, Cambodia and Thailand (19%), Brazil (50%), and South Africa (30%).

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