The United States is poised to reduce tariffs on a range of Indian exports from 25% to 18% as early as this week, a move expected to boost bilateral trade and solidify a recently agreed-upon interim trade pact. The implementation timeline is being closely monitored by Indian officials, with a team scheduled to visit Washington in the coming days to address any potential delays.
Commerce Secretary Rajesh Agrawal stated on Monday that the reduction from a 25% punitive tariff to 18% is already in process. “They are processing (it) and it should be done fast. Our expectation is that it will happen this week. In case it is not done, then the team is there next week and we can pursue why it is taking time,” Agrawal said during a media briefing.
The tariff reduction follows a joint statement issued on February 7th outlining the contours of the interim trade agreement. A key component of the deal involved India’s commitment to cease purchasing Russian Federation oil, which prompted the US to remove the initial 25% punitive tariffs. Negotiators are now focused on translating the agreed-upon principles into a legally binding agreement, with a target signing date in March 2026.
Darpan Jain, India’s chief negotiator for the trade agreement, is leading a team to Washington to finalize the legal framework. Both sides are continuing virtual discussions, with in-person negotiations anticipated next week. While officials are aiming for a March signing, Commerce Secretary Agrawal cautioned that legal agreement finalization can be intricate and may require additional time.
The agreement is expected to provide preferential market access for certain Indian cotton varieties, specifically extra-long staple cotton, which India currently imports from the US. The US primarily exports upland cotton, its principal variety. This move aims to facilitate increased trade in this sector.
India is also seeking concessional-duty access for garments manufactured from yarns and cotton under the interim trade deal, mirroring benefits secured by Bangladesh in its trade arrangement with the US. Commerce and Industry Minister Piyush Goyal highlighted this ambition last week, signaling India’s desire for comparable advantages in the apparel sector.
Digital Trade Excluded from Initial Agreement
Notably, a chapter addressing digital trade is not included in the current interim agreement. While both India and the US anticipate negotiating bilateral digital trade rules in the future, these discussions will be incorporated into a broader, more comprehensive trade pact – a bilateral trade agreement (BTA) – which is expected to be a longer-term undertaking.
Initial White House fact sheets indicated that India would be expected to negotiate rules preventing Customs duties on electronic transmissions and to eliminate its digital services tax. However, the fact sheet was subsequently revised to align with the joint statement, which instead focuses on addressing non-tariff barriers affecting bilateral trade and establishing rules of origin to ensure benefits accrue primarily to the US, and India.
The revised joint statement emphasizes India’s commitment to address non-tariff barriers impacting trade in priority areas. It also outlines a collaborative effort to define rules of origin, ensuring that the advantages of the agreement are largely realized by businesses in both the United States and India.
The interim trade deal represents a significant step in strengthening economic ties between the two nations. According to data from 2024, India’s exports to the US already totaled $86.35 billion. The tariff reductions, particularly in sectors like textiles, machinery, and agriculture, are expected to further stimulate export growth. The agreement offers Indian businesses a competitive edge, with tariffs slashed to 18% on approximately $30.94 billion of goods previously subject to reciprocal tariffs as high as 50%, and another $10.03 billion now enjoying zero-duty access.
This restructuring positions Indian exporters favorably against competitors like China, which faces tariffs of 35%, and Vietnam and Bangladesh, which were previously subject to 20% tariffs imposed by the US. The textile and apparel industries are poised to be significant beneficiaries, with US tariffs reduced from as high as 50% to 18%. Silk products, in particular, will gain zero-duty access to a $113 billion US market, opening up opportunities for expansion in a high-value segment.
Machinery and engineering exports are also expected to see a boost, with tariffs reduced to 18% in a US market estimated at $477 billion. The agreement builds upon a broader trend of increasing economic cooperation between the US and India, highlighted by the recent formalization of a free trade agreement between India and the European Union. However, analysts caution that the US-India deal, being an interim agreement, lacks the comprehensive scope of the EU agreement and remains subject to potential revisions.