SYLLABUS
GS-2: Bilateral, regional, and global groupings and agreements involving India and/or affecting India’s interests.
Context: The United States of America (U.S.) and India have reached a framework for an Interim Agreement on reciprocal and mutually beneficial trade, marking a major recalibration of bilateral trade relations.
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• The framework advances negotiations toward a comprehensive India–U.S. Bilateral Trade Agreement (BTA) launched on 13 February 2025 by President Donald J. Trump and Prime Minister Narendra Modi.
• It focuses on reciprocal tariff rationalisation, market access expansion, digital trade cooperation, supply chain resilience, and economic security alignment.
• India’s exports to the U.S. stood at USD 86.35 billion in 2024, and the agreement restructures tariff treatment across a significant portion of this trade basket.
• The deal balances export competitiveness with safeguards for farmers, MSMEs, and domestic manufacturing.
Key Highlights of the Deal
• U.S. Actions:
- The United States reduces reciprocal tariffs on Indian goods from 50% to 18% in key sectors.
- It removes the additional 25% tariff earlier imposed over India’s Russian oil purchases.
- It eliminates certain Section 232-related tariffs on steel, aluminium, copper-linked measures, aircraft parts, and specified products.
- It provides preferential tariff-rate quotas (TRQs) for selected auto components.
- It signals negotiated outcomes on pharmaceuticals subject to ongoing Section 232 review.
• Indian Actions:
- India eliminates or reduces tariffs on all U.S. industrial goods.
- India cuts duties on selected agricultural and food products such as dried distillers’ grains (DDGs), red sorghum, tree nuts, fresh and processed fruits, soybean oil, wine, and spirits.
- India commits to addressing long-standing non-tariff barriers, including import licensing and medical device regulations.
• Tariff Rationalisation on Indian Exports: Of USD 40.96 billion exports earlier subject to Reciprocal Tariffs (up to 50%), USD 30.94 billion has been reduced from 50% to 18%, while USD 10.03 billion now attracts zero duty.
- Around USD 38 billion in industrial exports secure zero additional duty access.
- Under Section 232 (end-use basis), USD 28.30 billion in exports receive zero reciprocal duty.
• Zero-Duty Agricultural Access: Zero additional duty has been granted on USD 1.36 billion agricultural exports, with USD 1.035 billion assured zero Reciprocal Tariff.
- Sensitive sectors such as meat, dairy, GM foods, cereals, pulses, and oilseeds remain protected.
- Tariff Rate Quotas (TRQs) and phased tariff elimination (up to 10 years) apply for select items.
• Sector-Specific Gains
- Textiles & Apparels: Tariffs reduced from 50% to 18%, while silk receives zero duty access and improved access to the USD 113 billion U.S. market.
- Leather & Footwear: Tariffs reduced from 50% to 18%, benefiting MSMEs and labour-intensive clusters.
- Gems & Jewellery: Tariffs reduced to 18%, with zero-duty access for diamonds, platinum, and coins (USD 29 billion market).
- Machinery & Industrial Goods: Tariffs reduced from 50% to 18% and strengthened access to the USD 477 billion U.S. machinery market.
• Digital & Technology Cooperation: Enhanced trade in GPUs, semiconductor chips, data centre equipment, and AI processors, along with streamlined ICT licensing.
- Commitment to robust digital trade rules under the BTA framework.
- India intends to purchase USD 500 billion in U.S. energy, aircraft, technology, and critical inputs over five years.
• Non-Tariff Barrier Reduction: India will address barriers related to medical devices, ICT import licensing, and food & agricultural standards.
- Mutual recognition of conformity assessment will reduce duplication and double testing.
• Rules of Origin & Safeguards: Strong Rules of Origin provisions ensure benefits primarily accrue to India and the U.S.
- A clause allows reciprocal tariff adjustment if commitments change.
- Calibrated liberalisation through quotas and phased schedules protects sensitive sectors.
Significance of India–U.S. Tariff Rationalisation
• Enhanced Price Competitiveness: India gains tariff advantages over competitors such as China (35%), Vietnam (20%), Bangladesh (20%), and Malaysia (19%), strengthening its position in labour-intensive and high-value sectors.
• Export Expansion into USD 30 Trillion Market: The agreement secures sustained preferential access to the world’s largest consumer market, enabling scale expansion across textiles, leather, machinery, agriculture, and technology goods.
• Boost to MSMEs and Employment: Significant tariff reductions in labour-intensive sectors strengthen MSME clusters and promote employment generation.
• Integration into Global Value Chains: Improved access to critical intermediate inputs such as semiconductor wafers, specialty chemicals, and aerospace components enhances manufacturing depth and supports export-led growth under Make in India.
• Digital & Strategic Technology Leap: Reliable access to AI chips, cloud hardware, and advanced digital equipment strengthens India’s data centre ecosystem and technological competitiveness.
• Balanced Agricultural Liberalisation: The framework protects sensitive farm sectors while expanding agricultural exports without exposing farmers to import shocks.
India–United States Bilateral Relations
| Historical Relations: | · India and the United States established diplomatic relations in 1947.· The relationship deepened significantly after the 2005 Civil Nuclear Agreement.· In 2016, the U.S. designated India as a Major Defense Partner (MDP).· On 13 February 2025, leaders launched the U.S.-India COMPACT initiative during PM Modi’s visit to Washington DC. |
| Economic Relations: | · The United States is India’s largest trading partner.· Total bilateral trade in goods and services reached $190.1 billion in 2023.· India’s exports to the U.S. were about $120 billion in 2023.· U.S. exports to India were about $70 billion in 2023.· Both countries launched “Mission 500” to raise trade to $500 billion by 2030.· The U.S. was the third-largest source of FDI into India in FY 2023–24. |
| Defence Relations: | · India signed key agreements such as LEMOA (2016), COMCASA (2018), and BECA (2020).· India has purchased more than $20 billion worth of U.S. defence equipment.· Major platforms include C-17 aircraft, C-130J aircraft, Apache helicopters, Chinook helicopters, and P-8I aircraft.· India signed a deal to procure MQ-9B Reaper drones in 2024.· Important exercises include Yudh Abhyas, Malabar, Cope India, Vajra Prahar, and Tiger Triumph.· The Initiative on Critical and Emerging Technology (iCET) strengthens cooperation in AI, quantum, semiconductors, and defence technology. |
| Clean Energy Relations: | · India and the U.S. launched the Climate and Clean Energy Agenda 2030 in 2021.· The partnership includes the Strategic Clean Energy Partnership (SCEP).· Cooperation covers renewable energy, hydrogen, biofuels, energy storage, and civil nuclear energy.· Both countries agreed to unlock $1 billion in multilateral financing for clean energy supply chains.· The Green Transition Fund is being anchored by India’s NIIF and the U.S. DFC.· Hydrocarbon trade between the two countries reached $13.6 billion in FY 2023–24. |
| Space Relations: | · The two countries are jointly developing the NISAR Earth observation satellite.· The NASA–ISRO Synthetic Aperture Radar (NISAR) satellite was successfully launched on 30 July 2025 from Sriharikota.· NASA supported India’s Chandrayaan-2 and Chandrayaan-3 missions.· ISRO and NASA signed agreements for cooperation in human spaceflight in 2024. |
| Indian Diaspora: | · About 4.4 million Indian Americans and Persons of Indian Origin live in the U.S.· About 300,000 Indian students are studying in the U.S. as of January 2025.· Indian students contribute about $8 billion annually to the U.S. economy. |