Big deal: Why the India-US trade agreement is likely to spell significant gains for both partners

The news comes as a huge relief to Indian exporters, who now have preferential access to two of their topmost export markets—the US and EU—along with others like the UAE and UK.

While the fine-print of the India-US deal is yet to be seen, the tariff announcement suggests that it will give our exporters an edge over rivals from countries such as Vietnam, for which the US agreed to a tariff reduction from 46% to 20%, or Indonesia, which faces a 19% US tariff.

The deal comes at a time when exporters of labour-intensive products like garments, footwear and leather items were feeling the pinch of high tariffs imposed in 2025. Without this relief, our exports to the US may have dipped.

Like all of America’s recent trade deals, this too seems to commit its bilateral partner to large purchases of US goods—worth over $500 billion in our case, including energy, technology and agricultural products, according to US President Donald Trump.

With the EU, India has already shown that agriculture is no longer a roadblock to trade agreements. In India’s previous and latest budgets, import duties were reduced on some products—a few pharmaceuticals and technology-related products, for example—that may have made it easier to meet US expectations on market access.

Specifically, an exemption of basic customs duty was granted on components needed for the manufacture of civilian, training and other aircraft; and also on raw materials imported to make parts of aircraft used in the maintenance, repair and overhaul of defence equipment. Products needed for nuclear power generation can enter India duty-free till 2035. Plus, the budget cut duties to zero on certain pharma products of interest to US companies.

The budget’s focus on high-value agriculture, with a quick mention of almonds and walnuts from our hills, may have indicated that India would open up these agri-commodities to imports from the US. The budget also had much to offer European and American express-delivery and e-commerce companies. The value limit of ₹10 lakh per consignment on Indian courier exports was removed, while issues of ‘reject-and-return’ consignments have been addressed.

Moreover, clear timelines were announced for fully integrated and paperless customs clearances. Most importantly, no announcement was made of the continuation of exporter-support schemes like the Remission of Duties and Taxes on Exported Products (RoDTEP) programme beyond 31 March 2026, as these had been challenged by the US.

A carefully-drafted budget that focused on structural changes, enhancing competitiveness for long-term growth and signalling India’s desire to remain deeply integrated with global markets—exporting more and attracting long-term investment—set the stage for this deal’s announcement.

India and the US have strong trade complementarities and a deal between the two will be mutually beneficial, no doubt. The US is easier to access as a market than the EU, if one looks at regulations and standards of labour and environmental compliance.

It would have been wonderful if the deal covered services and digital trade. As of now, this looks like a mini-deal that may have left key issues such as H-1B visas for later discussion. Even within the ambit of goods trade, it may not have covered issues like phytosanitary measures and technical barriers to trade. However, it sets the stage for a dialogue-based trade partnership.

Like all recent US deals, this one too is not about trade negotiations alone. It has strong geopolitical significance, be it about India having to reduce its oil imports from Russia or buying American energy and technology. With EU exporters getting preferential market access to the Indian market, it was in the interest of American companies to get this deal closed at the earliest. It was also eagerly awaited by Indian exporters that could not have diversified their export destinations overnight.

While questions could arise over its nitty-gritty, coverage, depth of commitment and compliance with World Trade Organization rules, it is likely to be implemented right away, unlike many of India’s other trade deals. That’s a major plus point.

Exporters are hopeful that India has been able to persuade the US to reduce its 50% tariff on steel and aluminium that was imposed in June under America’s Trade Expansion Act of 1962. The UK’s trade pact with the US had got it down to 25% for these metals made in the UK. In general, while Japan and the EU face only a 15% US tariff for most products, India has done pretty well in comparison with its direct competitors.

The leaders and trade negotiators of India and the US deserve our applause. The deal not only broadens the bilateral partnership’s scope, it also opens up greater space for strategic engagements in other forums. US tariff threats over the past year had pushed India to globalize faster, with New Delhi showing a new urgency to clinch trade agreements. Now the US deal should help ease our path towards a Viksit Bharat by 2047.

These are the author’s personal views.

The author is professor, ICRIER.