By Shivanand Pandit
The United States has recently announced a reduction in “reciprocal” tariffs on Indian goods from 25% to 18% and has also removed the extra 25% penalty imposed because of India’s imports of Russian oil. This decision has brought major relief to Indian exporters and government officials. After almost a year of tense economic relations, the move shows a fresh attempt to improve and strengthen ties between India and the US.
The decision came after high-level talks, including External Affairs Minister S. Jaishankar’s visit to Washington and a phone call between President Donald Trump and Prime Minister Narendra Modi. The reduction in tariffs from 25% (and previously 50%) to 18% represents the most concrete outcome of the understanding. It enhances the competitiveness of Indian exports in the US market. The declaration of a new trade understanding between the two countries, highlighted by a significant cut in US tariffs on Indian products, has generated widespread optimism among Indian industry leaders and financial markets.
The announcement was met with a strong positive reaction in the financial markets, as the Sensex and Nifty recorded a sharp rise. The Indian rupee also strengthened, while labour-intensive industries welcomed the move as much-needed relief after a prolonged period of stress. Moreover, the deal aligns with India’s broader strategy of diversifying its trade partnerships, including ongoing and proposed agreements with the European Union. It holds the potential to boost capital inflows, help reverse foreign portfolio investor outflows, and attract multinational companies looking for viable alternatives to China for manufacturing and investment.
Burning Concerns
The deal was first communicated through President Trump’s social media post, a departure from traditional diplomatic channels. He announced the tariff reduction and claimed that India had agreed to several commitments, including reducing trade barriers to zero, increasing purchases of American goods, and curbing Russian oil imports. Prime Minister Modi, in contrast, focused only on the tariff reduction and avoided mentioning any reciprocal obligations. His statement highlighted mutual cooperation and the benefits of collaboration between the world’s largest democracies, without providing operational details. This divergence has become a central feature of the ongoing debate surrounding the deal.
One of the most pressing concerns is the absence of a negotiated and publicly available agreement. President Trump referred broadly to a “trade deal,” but it remains unclear whether this pertains only to tariff adjustments or to the first tranche of a broader India–US Free Trade Agreement (FTA) initiated after Prime Minister Modi’s visit to Washington in February 2025. Unlike the recently concluded EU–India agreement, no formal document outlining tariff schedules, non-tariff barriers, market access, or investment rules has been released. This lack of transparency fuels uncertainty among businesses and investors. The absence of a formally published agreement and the differing interpretations offered by both governments have raised important questions regarding the scope, binding nature, and long-term implications of the arrangement.
The US President has claimed that India would reduce both tariff and non-tariff barriers on American products to “zero.” However, Indian authorities have neither confirmed nor explained this statement, and no specific information has been shared about which sectors or product categories would be covered under such an arrangement. Of particular concern are sensitive agricultural sectors such as soyabean and dairy, where India has traditionally resisted market liberalisation in order to safeguard the interests of domestic farmers. At the same time, US Agriculture Secretary Brooke Rollins indicated that the proposed agreement would lead to a substantial increase in American agricultural exports to India. This has sparked apprehension about the potential impact on India’s farming sector and the long-term stability of its agrarian economy.
President Trump stated that India had agreed to purchase more than $500 billion worth of American goods, covering sectors such as energy, technology, agriculture, and coal. However, the Indian government has not confirmed this claim. Considering that the current India–US bilateral trade is valued at around $131 billion and India’s investment in the United States is approximately $40 billion, such a commitment would amount to an enormous long-term financial responsibility. In the absence of clear information on timelines, funding arrangements, and sector-wise allocation, the claim remains uncertain and open to debate.
One of the most sensitive issues relates to India’s energy imports. President Trump claimed that India had agreed to stop purchasing Russian oil and instead rely on supplies from the United States and Venezuela. However, the Ministry of External Affairs has not formally supported or confirmed this statement. Traditionally, India has maintained that its oil import decisions are based on market conditions and the need to ensure national energy security. In August 2025, it strongly criticised US penalty tariffs, describing them as “unfair and unreasonable.” While Indian refiners have gradually reduced their dependence on Russian oil since late 2025, a complete halt could lead to higher costs and affect India’s strategic and geopolitical relationships.
The proposed deal is also closely linked to the US sanctions policy. Washington has warned of punitive measures against countries that continue economic engagement with Iran and has withdrawn earlier waivers that allowed India to invest in the Chabahar port. The lack of any specific budgetary allocation for Chabahar in the latest Union Budget further indicates that India may be gradually reducing its involvement in the project. In a similar vein, the prospect of increasing oil imports from Venezuela appears to align with US geopolitical objectives but raises questions about India’s autonomy in making independent energy procurement decisions. Taken together, these developments have reignited discussions on whether India is being pressured to conform more closely to American strategic priorities, potentially at the cost of its own long-term economic and diplomatic interests.
The reduction of tariffs to 18% strengthens India’s competitive position in comparison with several regional rivals. Earlier, Bangladesh and Vietnam were subject to tariffs of around 20%, Pakistan faced 19%, and China was taxed at 34%. With the new rate in place, India gains a modest advantage, particularly in sectors such as textiles, apparel, gems, and jewellery, where price competitiveness plays a crucial role. However, many neighbouring countries continue to benefit from the Generalised System of Preferences (GSP), from which India was excluded in 2019. These preferential arrangements allow them to export goods at lower or zero tariffs, providing them with an added competitive edge. Consequently, despite the recent tariff reduction, Indian exporters continue to face structural disadvantages in global markets, limiting the overall impact of the policy change.
Another significant area of concern relates to data access. US-based technology companies are keen to obtain access to large volumes of Indian data to support the development of artificial intelligence systems and other advanced digital technologies. However, so far, no clear provisions have been disclosed regarding how such data would be shared, stored, processed, or protected. The absence of transparent guidelines and enforceable safeguards has raised serious questions about the protection of individual privacy, national data security, and India’s digital sovereignty. Without a clearly defined regulatory framework, there is uncertainty over whether domestic laws and institutions will be able to effectively oversee the use of sensitive data and prevent its misuse. This lack of clarity also fuels concerns about long-term control over India’s digital resources and technological future.
Another important area relates to intellectual property rights. Recent free trade agreements indicate a growing shift towards voluntary licensing arrangements, particularly in sectors such as pharmaceuticals and high-technology innovation. While such provisions may encourage collaboration, they could also weaken India’s ability to produce affordable generic medicines and develop independent technological capabilities. In the absence of detailed disclosures, it remains unclear how these changes might affect domestic industries and long-term innovation.
Equally concerning is the limited communication from the Indian government. Authorities have largely refrained from providing detailed explanations or official statements, leaving the public and stakeholders to rely primarily on announcements and interpretations from US officials. This communication gap has created uncertainty and confusion about the true nature and implications of the deal.
The government must uphold transparency
The recently concluded India–United States trade agreement represents an important milestone in rebuilding economic cooperation after a phase marked by uncertainty and strained relations. By lowering tariffs on select goods and services, the deal offers immediate relief to Indian exporters, enhances their competitiveness in international markets, and contributes to improved investor confidence. It also reinforces India’s role within global supply chains, making the country more attractive as a manufacturing and sourcing hub, while simultaneously strengthening prospects for increased foreign direct investment.
At the same time, the agreement remains partial in scope and limited in transparency. Several critical aspects—including the extent of tariff liberalisation, long-term energy cooperation, concrete investment commitments, and the preservation of India’s strategic and policy autonomy—have yet to be clearly defined. Moreover, differing interpretations and public statements issued by authorities in Washington and New Delhi have created ambiguity, making it difficult for businesses, policymakers, and stakeholders to fully assess the agreement’s true implications.
Looking ahead, India faces the challenge of carefully balancing short-term economic benefits with the need to safeguard long-term sovereignty and independent policy-making. To ensure that the agreement genuinely serves national interests, the government must prioritise transparency in negotiations, facilitate thorough parliamentary oversight, and ensure timely public disclosure of all major commitments and obligations. Such measures will be crucial not only for maintaining democratic accountability but also for fostering a stable, mutually beneficial, and sustainable framework for bilateral economic cooperation between the two nations.
Despite the prolonged and often arduous process leading up to it, the announcement of a trade agreement sends a clear signal that the India–US relationship is resilient enough to withstand even major political disruptions—particularly those that are artificially created and largely avoidable. The fact that both countries were able to navigate through a period of unnecessary tension and still arrive at a negotiated outcome highlights the underlying strength of their strategic and economic ties.
However, mere survival of the relationship is not sufficient. If India and the United States genuinely aspire to collaborate on broader global challenges, they must move beyond crisis management and short-term compromises. At a time when the international system is becoming increasingly fractured, unstable, and polarised, both nations have a shared responsibility to contribute to restoring balance, cooperation, and effective global governance. This will require deeper trust, sustained engagement, and a long-term vision that goes well beyond isolated trade agreements.
