India and the United States are reportedly nearing a significant trade agreement that could dramatically reduce US tariffs on Indian goods. Currently, the US imposes substantial tariffs, sometimes as high as 50%, on various Indian products. An expected breakthrough could see these rates fall to around 15-16%, providing a much-needed boost for Indian exporters and the overall economy. The pact, which has been in development for some time, is now gaining momentum with progress in energy cooperation and agricultural market access discussions.
Chief Economic Advisor V. Anantha Nageswaran expressed optimism about resolving punitive tariffs imposed by the White House. He anticipates a resolution within the next few months, potentially leading to a reduction in the additional 25% punitive tariffs. These duties have posed considerable challenges for Indian businesses. Nageswaran also indicated that negotiations regarding reciprocal tariffs are ongoing and could see the 25% levies reduced to the targeted 15-16% range, a development that would be widely celebrated in India’s trade sector.
In the fiscal year 2024-25, India’s exports to the US, its largest market, amounted to $86.51 billion. While the impact of existing tariffs was somewhat mitigated this year due to India having already secured a significant portion of its export volume, maintaining the 50% rate could have severely impacted future exports, potentially by 30%. This trade deal aims to avert such a severe economic setback.
Energy ties are a cornerstone of the potential agreement. There are suggestions that India might gradually decrease its crude oil imports from Russia as part of a broader economic partnership with Washington. Historically, these Russian oil purchases were a catalyst for the imposition of the 25% punitive tariff. Presently, India sources approximately 34% of its crude oil from Russia and about 10% from the United States. The deal might involve India allowing ethanol imports and moderating Russian crude purchases in exchange for energy trade concessions from the US. Government oil companies are likely to diversify their sourcing to include US crude. Notably, the price difference between discounted Russian crude and benchmark oil has significantly narrowed, making US and Middle Eastern crude more economically viable.
The trade pact also addresses agricultural trade. India may open its markets to US non-GMO corn and soymeal. This comes at a time when US agricultural exporters are facing dwindling markets, particularly after China drastically cut its corn imports. India stands to become a significant market for American agricultural products.
Recent high-level discussions, including a phone call between US President Donald Trump and Prime Minister Narendra Modi, focused heavily on energy. Following this conversation, President Trump indicated that Prime Minister Modi had assured him of India’s intention to limit its oil purchases from Russia. Prime Minister Modi acknowledged the “constructive engagement” without divulging specific details, expressing appreciation for the call on social media.
While official comments from the Ministry of Commerce and the White House are pending, expectations are high that a formal announcement could be made around the time of the ASEAN Summit. This potential agreement marks a pivotal moment in India-US trade relations, promising to reshape tariffs, enhance agricultural trade, and solidify strategic energy alignment.
