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

Sources :-
PIB
PIB
PIB
Live Mint