US President Donald Trump is pushing Prime Minister Narendra Modi to do what India for many years couldn’t or wouldn’t do: decrease the excessive tariff partitions which have surrounded the world’s largest growing economic system since independence.
Piyush Goyal, India’s commerce minister, was in Washington final week for discussions on a bilateral commerce settlement meant to fend off Trump’s menace final month of reciprocal tariffs.
Whereas Indian officers say discussions are “advancing”, Trump on Friday mentioned New Delhi had agreed to chop its tariffs “way down”. US commerce secretary Howard Lutnick mentioned India wanted to purchase extra defence merchandise and decrease its tariffs for the 2 nations to signal a “grand” bilateral deal.
The US ultimatum has prompted what some analysts say is a broader realignment on commerce by New Delhi, which has historically been a tricky negotiator. India in February relaunched its long-running free commerce settlement talks with the UK and pledged to full an FTA with the EU inside the 12 months.
“India’s political leadership understands the Trump disruption and the opportunity for reworking our relationships with the US, the EU and the UK,” mentioned Raja Mohan, a visiting professor on the Institute of South Asian Research in Singapore. “If there is political will, it is possible that India will soon have these three trade agreements that will reshape our ties with the west.”
Already, Modi has promised to purchase extra US oil and gasoline, although it has nearer and cheaper suppliers within the Center East and Russia. The 2 nations additionally agreed to conclude the primary tranche of a “mutually beneficial, multisector” bilateral commerce settlement by autumn.
However India, which has protected its industries fiercely since independence in 1947, has among the world’s highest common tariffs, and the price of chopping them shall be politically delicate, significantly in agriculture, the place practically half of Indians work.
The negotiation might nicely fail, which might convey retaliatory tariffs as quickly as April, Indian analysts mentioned. Chatting with Fox Information host Sean Hannity after his February 13 assembly with Modi, Trump mentioned he informed India’s prime minister: “Whatever you charge, I’m charging”.
The Modi authorities has since 2014 signed FTAs with Australia, the United Arab Emirates and the European Free Commerce Affiliation.
Nonetheless, it has additionally since 2020 launched tariffs to guard rising industries comparable to photo voltaic tools and electronics and help what Modi calls Atmanirbhar Bharat (“self-reliant India”), in an echo of previous protectionist governments.
In FTA talks with EFTA and the UK, the Modi authorities has been a tough negotiator, analysts mentioned, demanding that its buying and selling companions scale back their tariffs greater than India does on the idea that it’s rising sooner and presents wealthy economies a much bigger future market alternative than they do.
Nonetheless, they famous that India’s commerce stance vis-à-vis Washington has been meeker, maybe reflecting America’s standing as a strategic defence and financial associate.
The US is India’s largest buying and selling associate, with $129bn of mutual commerce in 2024, although EU nations collectively account for extra. The US’s India commerce deficit reached greater than $45bn final 12 months — lower than half of the “almost $100bn” deficit Trump claimed on the White Home, however the tenth largest of America’s commerce companions.
The tariffs India imposes on US items are larger than America’s, in some instances by a giant margin. Whereas the hole for industrial merchandise is 3.3 per cent, for agricultural merchandise it stands at 32.4 per cent, in line with the International Commerce Analysis Initiative (GTRI), a New Delhi think-tank.
Earlier than and after Modi’s Washington go to, India introduced a spherical of largely symbolic tariff cuts on bourbon whiskey, luxurious automobiles, and enormous bikes, the final to deal with a long-running Trump grievance about tariffs on Harley-Davidson.
The 2 sides additionally agreed to extend US exports of business items to India and Indian-manufactured merchandise to the US and pledged to “work together to increase trade in agricultural goods”, scale back tariffs and non-tariff boundaries and deepen provide chain integration.
It’s in agriculture that Modi faces probably the most politically delicate challenges.
India’s protected dairy business, which enjoys import tariffs of 30-60 per cent, performed a important position in prompting the nation to drag out of talks to kind the Regional Complete Financial Partnership the 12 months earlier than its ratification by 15 Asia-Pacific nations, together with China, in 2020.
The most important dairy firm Amul petitioned Modi’s authorities, warning that RCEP would damage India’s roughly 100mn dairy farmers, a lot of them smallholders. India’s highly effective farming foyer additionally pressured New Delhi right into a uncommon retreat on three farming payments meant to overtake agriculture by staging mass protests in 2020-21.
“There are certain sectors in which cutting tariffs could be problematic, notably agriculture,” mentioned Biswajit Dhar, a former negotiator for India with the World Commerce Group and distinguished professor on the Council for Social Improvement.
“The US-India joint statement mentions agricultural products, but the onus is on India to cut,” Dhar mentioned.
Lutnick mentioned India needed to “open up” its agriculture market.
Whereas India’s agricultural items tariffs are larger, the US spends far more on subsidies, Dhar added.
Indian analysts additionally imagine that Washington could push New Delhi to open authorities procurement to US corporations and take away restrictions on knowledge flows — delicate calls for for a growing nation that values its financial sovereignty.
The commerce talks promise to be fraught, they mentioned.
“The best option for India is that we make tariffs on almost all industrial tariff lines ‘zero for zero’,” mentioned Ajay Shrivastava, founding father of GTRI, the analysis group. “But any discussion of agriculture has to be very nuanced, because it’s a livelihood issue for us.”
