A newly established interim trade agreement between the United States and India is expected to bolster investor confidence and facilitate increased capital flows as India further integrates into the global economy, according to Sundararaman Ramamurthy, MD and CEO of the Bombay Stock Exchange (BSE). The deal, finalized after a phone call between Prime Minister Narendra Modi and US President Donald Trump on , represents a significant step towards deepening the economic partnership between the two nations.
The core of the agreement involves India eliminating or reducing tariffs on a broad range of US industrial goods and agricultural products. Specific agricultural items included in the tariff reductions are dried distillers’ grains (DDGs), red sorghum for animal feed, tree nuts, fresh and processed fruit, soybean oil, wine and spirits. The US, in turn, will reduce tariffs on Indian goods to 18%, down from a previous rate of 50% imposed since .
While the agreement is being hailed as a positive development, details remain somewhat opaque. Ishita Mukhopadhyay, Senior Professor of Economics at the University of Calcutta, noted the joint document lacks transparency regarding the specific commodities and services encompassed within the bilateral trade agreement (BTA). A key concern raised by Mukhopadhyay is the potential impact on domestic agricultural production, suggesting increased market access for US agricultural products could displace Indian producers.
The agreement also addresses non-tariff barriers to trade. India has committed to resolving longstanding obstacles to the import of US medical devices and streamlining import licensing procedures for US Information and Communication Technology (ICT) goods, which have previously caused delays in market access. This move is intended to facilitate smoother trade flows and encourage greater participation from US technology companies.
A significant component of the deal involves India’s intention to purchase USD 500 billion worth of US energy products, aircraft and aircraft parts, precious metals, technology products and coking coal over the next five years. The agreement also specifically highlights a planned increase in trade related to technology products, including Graphics Processing Units (GPUs) and other equipment used in data centers, alongside expanded joint technology cooperation. This reflects the growing demand for advanced technology infrastructure within India, and the US’s position as a leading provider in this sector.
However, the agreement appears asymmetrical in its commitments, according to G. Vijay, Associate Professor of Economics at the University of Hyderabad. Vijay points out that India has pledged to purchase a specific value of goods from the US, while the US commitment is limited to reducing tariffs to reciprocal rates. He suggests that geopolitical and security considerations may be playing a larger role than purely economic factors, given the US’s greater reliance on Indian imports and the potential for supply chain disruptions for US industries.
The BTA, initially proposed in , aims to more than double bilateral trade from its current level of USD 191 billion to USD 500 billion by . The agreement also seeks to protect sensitive sectors within the Indian economy, particularly agriculture and dairy, reflecting concerns about the potential impact of increased competition from US producers. India secured protection for these sectors during negotiations, a point emphasized by officials.
The move towards a broader bilateral trade agreement follows years of trade tensions, including tariffs imposed by the Trump administration on major exporters like India and China. The reduction in tariffs to 18% represents a significant concession from the US, and is seen as a positive step towards resolving these trade disputes. Piyush Goyal, India’s Commerce and Industry Minister, has dismissed criticism that India conceded too much in the agreement, asserting that the reduced tariffs will provide Indian goods with a competitive advantage over those from China, which faces a 35% tariff.
Goyal further emphasized India’s negotiating strength, highlighting its projected economic growth trajectory. He stated that India is currently a USD 4 trillion economy, with ambitions to become a USD 30-35 trillion economy by , when it is expected to achieve developed nation status. This future market potential, according to Goyal, is a key factor in India’s trade negotiations.
The BSE’s Ramamurthy believes the successful conclusion of the interim agreement will directly contribute to the “Viksit Bharat” vision – a developed India – by strengthening the foundation for capital flows and deepening market participation. The agreement’s impact on investor sentiment and market dynamics will be closely watched in the coming months as the details of implementation are finalized.