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 financial 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 stated New Delhi had agreed to chop its tariffs “means down”. US commerce secretary Howard Lutnick stated India wanted to purchase extra defence merchandise and decrease its tariffs for the 2 international locations 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 troublesome negotiator. India in February relaunched its long-running free commerce settlement talks with the UK and pledged to complete an FTA with the EU throughout the yr.
“India’s political management understands the Trump disruption and the chance for transforming {our relationships} with the US, the EU and the UK,” stated Raja Mohan, a visiting professor on the Institute of South Asian Research in Singapore. “If there may be political will, it’s attainable that India will quickly have these three commerce agreements that may reshape our ties with the west.”
Already, Modi has promised to buy more US oil and gas, although it has nearer and cheaper suppliers within the Center East and Russia. The 2 international locations additionally agreed to conclude the primary tranche of a “mutually useful, 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 reducing them shall be politically delicate, significantly in agriculture, the place practically half of Indians work.
The negotiation may nicely fail, which may deliver retaliatory tariffs as quickly as April, Indian analysts stated. Talking to Fox Information host Sean Hannity after his February 13 assembly with Modi, Trump stated he instructed India’s prime minister: “No matter you cost, 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 resembling photo voltaic tools and electronics and assist 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 hard negotiator, analysts stated, 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 an even 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 companion.
The US is India’s largest buying and selling companion, with $129bn of mutual commerce in 2024, although EU international locations collectively account for extra. The US’s India commerce deficit reached greater than $45bn final yr — lower than half of the “nearly $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 increased 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, based on the International Commerce Analysis Initiative (GTRI), a New Delhi think-tank.
Earlier than and after Modi’s Washington visit, India introduced a spherical of largely symbolic tariff cuts on bourbon whiskey, luxurious automobiles, and enormous bikes, the final to handle a long-running Trump criticism about tariffs on Harley-Davidson.
The 2 sides additionally agreed to extend US exports of commercial items to India and Indian-manufactured merchandise to the US and pledged to “work collectively to extend commerce in agricultural items”, scale back tariffs and non-tariff limitations and deepen provide chain integration.
It’s in agriculture that Modi faces probably the most politically delicate challenges.
India’s protected dairy trade, which enjoys import tariffs of 30-60 per cent, performed a vital function in prompting the nation to drag out of talks to kind the Regional Complete Financial Partnership the yr earlier than its ratification by 15 Asia-Pacific international locations, together with China, in 2020.
The largest dairy firm Amul petitioned Modi’s authorities, warning that RCEP would harm India’s roughly 100mn dairy farmers, lots of them smallholders. India’s highly effective farming foyer additionally compelled New Delhi right into a uncommon retreat on three farming payments meant to overtake agriculture by staging mass protests in 2020-21.
“There are specific sectors through which reducing tariffs might be problematic, notably agriculture,” stated 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 assertion mentions agricultural merchandise, however the onus is on India to chop,” Dhar stated.
Lutnick stated India needed to “open up” its agriculture market.
Whereas India’s agricultural items tariffs are increased, the US spends rather more on subsidies, Dhar added.
Indian analysts additionally imagine that Washington could push New Delhi to open authorities procurement to US firms 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 stated.
“The most suitable choice for India is that we make tariffs on nearly all industrial tariff strains ‘zero for zero’,” stated Ajay Shrivastava, founding father of GTRI, the analysis group. “However any dialogue of agriculture needs to be very nuanced, as a result of it’s a livelihood difficulty for us.”
