Searching Deals amid Deadlocks

India successfully concluded a ‘historic and ambitious deal’ with the UK on May 6, just a few hours before striking the terrorist camps in the Pakistan-Occupied Kashmir (POK). The country is also at various levels of trade negotiations with several economies, including the EU, the USA, New Zealand, Chile, Oman, Saudi Arabia, Qatar, the Gulf Cooperation Council (GCC), and others. India and the EU have decided to conclude negotiation for an FTA by the end of this year. Since February 2025, after a meeting between the Indian Prime Minister and the US President, both the countries have been actively negotiating a Bilateral Trade Agreement (BTA) to increase their bilateral trade to USD 500 billion by 2030. The first phase of the pact, targeting to be finalised by the fall of 2025, aims to reduce or eliminate customs duties and ease norms for trade in services and investment.

Several trade negotiations are being held at a time when India’s trade deficit is increasing due to a steady increase in imports. Merchandise export has remained almost stagnant. India’s total export during FY 2024-25 (April-March) is estimated at USD 820.93 billion, registering a positive growth of 5.50 per cent due to the rising export of services. And the total import during FY 2024-25 (April-March) is estimated at USD 915.19 billion, registering a growth of 6.85 per cent. The trade deficit in 2024 was wider than the previous year’s deficit of USD 73.51 billion. The cumulative value of merchandise exports during FY 2024-25 (April-March) was USD 437.42 billion, registering a positive growth of only 0.08 per cent, as compared to USD 437.07 billion during FY 2023-24 (April-March). Significantly, the United States continued to be India’s largest trading partner for the fourth year in a row. In FY 2024-25, total bilateral trade reached USD 131.84 billion. India’s exports to the US grew by 11.6 per cent in 2024-25, rising to USD 86.51 billion, compared to USD 77.52 billion in 2023-24. Imports from the US also increased by 7.44 per cent to USD 45.33 billion, up from USD 42.2 billion in the previous year.

As India enjoys a trade surplus with the USA, the Trump administration proposed a hefty reciprocal tariff on India to safeguard the interests of the US economy. Typically, reciprocal tariff rates are imposed on imports in exchange for foreign trade barriers on the country’s exports. In many cases, reciprocal tariffs, particularly those imposed based on trade deficits or perceived unfair trade practices, are not WTO-compliant. They often violate fundamental WTO principles, especially the Most-Favoured Nation (MFN) rule and the obligation to respect bound tariff rates. It is alleged that the reciprocal tariffs promulgated by the USA on developing economies and least developed countries (LDCs) undermine the basic principle of the WTO’s framework as well as the General Agreement on Tariffs and Trade (GATT) provisions.

Genesis of India-USA BTA

On his first day in office, January 20, 2025, President Donald Trump warned BRICS nations that any country pursuing de-dollarisation would face a 100 per cent tariff on trade with the United States. Trump’s remarks were in response to the ongoing efforts by some BRICS members — including Russia and China — to reduce the dominance of the US dollar in global trade. However, the former Reserve Bank Governor of India, Shaktikanta Das, clarified that India was not pursuing de-dollarisation but rather focusing on minimising risks from geopolitical changes. Indian Prime Minister, a trusted friend of the US President, rushed to Washington to rebuild the confidence, and after a fruitful meeting, a joint statement was issued on February 13, 2025.

Before the Indian Prime Minister met with the US President, India slashed peak tariffs from 150 per cent to 70 per cent, to “correct bad optics”, amidst Trump’s tariff war. India had prepared a fact sheet for American diplomats on tariffs on key US products. It revealed that import duties on the top 30 items from the US were all below 7.5 per cent. And the latest round of import tariff revisions announced in the Budget (2025-26) have done away with the peak rates of 150 per cent, 125 per cent, and 100 per cent, which applied to just five items, but had created “bad optics” about India’s tariff structure.

The Indo-US joint statement dated February 13 also announced “Mission 500”, which aims at USD 500 billion bilateral trade by 2030. America’s total goods trade with India was estimated at USD 129.2 billion in 2024. Next week, the US commerce secretary, Howard Lutnick, called upon India to open up the agricultural sector for trade, saying “it just can’t stay closed”. He repeatedly called for a bilateral deal, arguing that a pact “with the largest consuming economy in the world” would be beneficial. Lutnick sought a “grand deal”, saying, “Let’s bring India’s tariff policy towards America down, and America will invite India to have an extraordinary opportunity and relationship with us.” The terms “large” and “grand” bilateral trade agreement are usually used while seeking to negotiate a comprehensive trade agreement covering all key aspects, rather than engaging in sector-specific discussions. Lutnick’s statement has created apprehension among Indian policymakers because, beyond tariff reductions, the US may like to include provisions on government procurement, agricultural subsidies, patent law relaxation, and unrestricted data flows, issues that India has largely opposed for decades.

During March, Indian and US officials discussed trade issues including the reduction of tariffs and easing of non-tariff barriers, making progress towards a bilateral trade agreement during several days of talks in New Delhi. But on April 2, US President Donald Trump unveiled reciprocal tariffs in a meeting held at the White House, which are to work as a punishment to countries around the world. India was slapped with a 26 per cent “discounted reciprocal tariff” which, according to Trump, is half of the tariff, “including currency manipulation and trade barriers”, imposed by India on the US.

US Vice-President JD Vance met the Indian Prime Minister in Delhi on April 21 and reviewed plans for India-US cooperation and “formally announced the finalisation of the Terms of Reference for the negotiations”. Meanwhile, the US has questioned India’s Production Linked Incentive (PLI) scheme for specialty steel at the WTO, suggesting that the subsidies may not be appropriate, given the global over-capacity in the metal. India, however, maintains that the PLI scheme will reduce the country’s dependence on imports of high-grade steel and that is a much-needed step towards attaining self-sufficiency and securing the nation’s interests.

The USA is also trying to put pressure on India to buy military equipment. During his recent visit to India, the US Vice President urged India to buy more military hardware from the US, including the fifth-generation F-35 fighter aircraft, which, according to him, would give the Indian Air Force the ability to protect the citizens of the country like never before.

A Few Concerns

It appears that Indian policymakers are not certain about the strategy India should take while dealing with the USA negotiators. There are differences of opinion on tariff rates, no clear policy on non-tariff barriers, and on how to safeguard farmers.

US has successfully framed India’s trade practices as the cause of the US trade deficit, pressuring India to increase purchases of American goods and ease regulations for US companies. The US administration has been able to dominate the perception battle with its Indian counterpart at a time when both partner countries are negotiating for a bilateral trade deal, according to Ajay Srivastava, Founder of the Global Trade Research Initiative (GTRI) and a former trade officer.

Tariff or No Tariff?

In February, GTRI suggested that India should propose a zero-for-zero tariff strategy to the US to address America’s tariff hikes. Under this strategy, it has been stated that India can identify tariff lines (or product categories) where it can eliminate import duties for American imports, and in return, the US should also remove duties on a similar number of goods. For example, while the US was looking at duty concessions in sectors like certain industrial goods, automobiles (electric vehicles particularly), wines, petrochemical products, dairy, agriculture items such as apples, tree nuts, and alfalfa hay; India may look at duty cuts for labour-intensive sectors like apparels, textiles, gems and jewellery, leather, plastics, chemicals, oil seeds, shrimp, and horticulture products, they argued.

Surprisingly, when the USA is nudging India for lowering tariffs and has proposed to impose steep import tariff to protect its domestic industries, in a recent interview, the former Deputy Chairman of Planning Commission, Montek Singh Ahluwalia, who was the country’s longest serving finance secretary from 1993 to 1998, when India liberalised its economy and witnessed jobless GDP growth, said, India should be open to lowering tariffs across all major partner countries through free-trade agreements, and not just the United States (US). He also suggested India should now apply to join the CPTPP (Comprehensive and Progressive Agreement for Trans-Pacific Partnership).

Union Commerce Minister Piyush Goyal could visit the US in the next couple of weeks, around May 19, for trade talks. The Indian side has offered zero tariffs except for wheat, maize, rice, and dairy, sources said. But the US wants to keep tariffs on India at 10 per cent. US President Donald Trump said India has agreed to remove its high tariffs on American goods “to nothing”, reports CNBC TV18.

Non-Tariff Barriers

The USA is also putting pressure on lowering various non-tariff barriers. The US side shared a list of 70 non-tariff barriers with India. The USA wants India’s dairy market to be opened up to them. But India’s food standards prohibit the import of milk and milk-based products if the cattle that produce the milk have been fed on meat extracts and so on. This becomes a non-tariff barrier to the USA as American cattle are fed with such products.

Non-tariff barriers, imposed by developed nations, are major concerns for developing countries like India. India has cited data from the World Bank, which indicates the presence of 350 Non-Tariff Measures (NTMs) in the United States in 2023. The Directorate General of Foreign Trade (DGFT) has highlighted that such measures limit market access in advanced countries. Earlier, Indian exporters faced many such NTMs restricting entry into the USA market.

Farmers’ Protection

Developed countries support farmers through various types of subsidies, and therefore, they have relatively lower tariffs on most areas of agriculture. India does not have the fiscal capacity to provide comparable subsidies, hence, it protects farmers through tariffs. Economists have argued that various clauses mentioned in the Agreement on Agriculture (AoA) go against the interests of developing countries like India. According to Biswajit Dhar (EPW March 8, 2025), the assessment method used by the WTO of India’s subsidy regime is incorrect. Taking advantage of this, the US has been systematically targeting India’s agricultural subsidies in the WTO. In a series of submissions to the WTO’s Committee on Agriculture, the last of which was made in November 2024, the US and four other WTO members argued that India’s minimum support price (MSP) for rice and wheat far exceeded the permissible limit.

India is ranked as the 8th largest global importer of agricultural and related products. Agricultural and related products include all agricultural products plus forest products, seafood, and biodiesel. In 2023, India imported USD 37 billion of agricultural and related products from the world. In the past 5 years, India’s imports have grown substantially, up by USD 12.5 billion (51 per cent) from USD 24,489 million in 2019. In 2023, the major exported bulk products from the USA to India, consisting of commodities which have received little or no processing, included cotton (USD 237 million) and soybeans (USD 26 million). In 2024, the US administration had identified the bulk, intermediate, and agriculture-related US products with high potential for the Indian market. It included cotton, dairy products, ethanol, fresh fruit, forest products, processed food and beverages, pulses, and tree nuts. It also mentioned that policy changes will expand market opportunities for important US products for pecans, almonds, apples, chickpeas, lentils, walnuts, blueberries, cranberries, frozen turkey, and frozen duck. The report concluded that India has tremendous potential to be a large consumer of many of the high-quality and diverse agricultural products that the United States has to offer.

China, Mexico, and Canada are the biggest foreign buyers of US agricultural goods. Due to Trump’s tariff war with major importers of US farm products, it is feared that farmers won’t be as profitable in 2025. To compensate the US farmers for lost exports, the Trump administration is desperately trying to enter India’s expanding agro market. It is not yet clear how India would protect its agriculture sector and the interests of its farmers from aggressive dumping of highly subsidised US farm products, many of which are genetically modified.

Observation

Trump’s strategy to break BRICS by creating a rift between China and Russia has failed. Trump’s Ukraine peace initiative, siding with Putin, has misfired. China and Russia have agreed to strengthen cooperation in matters of international law, according to a joint statement released on Friday (May 9), following Chinese President Xi Jinping’s meeting with Russia’s Vladimir Putin. India, the other founding member of BRICS, remains the last hope for Trump.

The writer is a professor of Business Administration who primarily writes on political economy, global trade, and sustainable development.
Views expressed are personal