New Delhi – India is pressing ahead with a series of economic reforms designed to attract foreign investment and boost long-term growth, emboldened by a recent trade agreement with the United States and decisive electoral victories. The reforms, coupled with a commitment to fiscal prudence, signal a renewed focus on economic liberalization under the current ruling coalition.
The cornerstone of this shift is an interim trade agreement reached with the United States last week, announced on February 6th and formalized with the removal of a 25% tariff by President Donald J. Trump on February 9th. The deal lowers the reciprocal tariff on Indian goods to 18%, bringing it closer to levels seen in other Asian economies. According to the White House, the agreement will open India’s market of over 1.4 billion people to American products.
The tariff reduction is expected to provide a boost to Indian exports, particularly in sectors like textiles, apparel, leather, and footwear. The agreement also addresses non-tariff barriers to trade and sets the stage for negotiations towards a broader Bilateral Trade Agreement (BTA). Goldman Sachs Research forecasts that the new trade deal will contribute an incremental 0.2 percentage points to India’s GDP growth, based on the country’s goods exports exposure to US final demand.
Beyond the US deal, India has been actively pursuing other trade agreements to diversify its export markets. A landmark agreement with the European Union is reportedly nearing completion, further reducing reliance on any single trading partner. This diversification strategy is seen as crucial for mitigating risks associated with global economic volatility.
The political impetus for these reforms stems from the ruling Bharatiya Janata Party (BJP)-led coalition’s strong performance in the 2025 state legislative elections. These victories have provided the government with the political capital necessary to implement historically difficult economic changes. The government is now focused on easing the cost of doing business and spurring private investment, recognizing that sustained economic growth requires a more favorable investment climate.
A key element of this strategy is a commitment to fiscal prudence, reaffirmed in the recent Union Budget. The government has announced a debt-to-GDP target ratio, signaling its intention to maintain macroeconomic stability. This commitment is intended to reassure investors and maintain confidence in the Indian economy.
Further incentives are being offered to attract foreign investment in key sectors, including electronics manufacturing and data centers. The government aims to move India higher up the value chain in electronics, reducing its dependence on imports and creating more skilled jobs. The push to attract investment in data centers reflects the growing importance of digital infrastructure and data security.
The decision to halt purchases of Russian crude oil, a condition linked to the US tariff reduction, also underscores India’s willingness to align with Western partners on strategic issues. This move, while potentially increasing energy costs in the short term, is seen as a demonstration of India’s commitment to international norms and its growing geopolitical influence.
The Indian stock market is already reacting positively to the trade deal, with expectations of a rise in investor confidence. Analysts predict that export-oriented and manufacturing-linked sectors will be among the biggest beneficiaries. Livemint reported that over 30 stocks are poised to benefit from the improved trade outlook.
However, challenges remain. While Goldman Sachs Research forecasts India’s real GDP to grow at 6.9% in 2026 and 6.8% in 2027, sustaining this growth will require continued reforms and a stable global economic environment. Inflation, while lower in 2025, remains a concern, and the government will need to carefully manage monetary policy to maintain price stability.
The reforms also face potential hurdles related to implementation and bureaucratic inefficiencies. Ensuring that the benefits of the trade agreements are fully realized will require effective coordination between government agencies and a streamlined regulatory framework. Addressing non-tariff barriers, as outlined in the US agreement, will be crucial for maximizing trade flows.
Despite these challenges, the current momentum suggests that India is on a path towards sustained economic growth and greater integration into the global economy. The combination of trade liberalization, fiscal prudence, and investment incentives is expected to unlock private investment and drive long-term productivity gains. The government’s commitment to these reforms signals a clear intention to position India as a major player in the 21st-century global economy.
The reduced US tariffs, effective as of February 7th, will eliminate duties on items such as generic medicines, gems and diamonds, and aircraft components, opening up stronger export prospects across several key sectors. This move is expected to further strengthen the economic partnership between the two countries and contribute to a more balanced and reciprocal trade relationship.
