In a move poised to reshape trade relations between the two nations, the United States Trade Representative (USTR) has announced a new trade agreement with India, signaling a significant shift in tariff policies. While the agreement eliminates tariffs on industrial goods, providing a boost to numerous sectors, it notably maintains protections for India's sensitive agricultural and dairy sectors.
USTR Jamieson Greer, in an interaction with CNBC, stated that India has agreed to cut average duties on industrial goods to zero, a substantial reduction from the previous 13.5%. This measure is expected to significantly deepen economic ties, boost industrial trade, and address long-standing market access concerns between the United States and India.
However, the agreement also carves out protections for India's agricultural sector. Union Minister Piyush Goyal emphasized that the sensitive factors of India's economy, particularly agriculture and dairy, have been protected in the deal. This decision reflects India's commitment to safeguarding the interests of its farmers and maintaining the integrity of its agricultural industry.
While certain protections remain for the agricultural sector, tariffs for a variety of agricultural goods like wine, spirits, tree nuts, vegetables, and fruits are going down to zero.
The USTR has also confirmed progress in reducing technical non-tariff barriers and establishing recognition of U.S. standards, which could streamline trade processes and reduce compliance costs for American exporters. Greer told CNBC that the U.S. would continue to work on access to certain protected areas of India's agriculture sector.
The trade deal comes more than five months after Washington imposed tariffs of up to 50 per cent on several Indian exports, including a 25 per cent punitive duty linked to India's purchases of Russian oil.
Following news of the trade agreement, the Indian equity markets closed in green, and the rupee strengthened sharply. Forex dealers believe that the tariff cut improves India's relative competitiveness and could revive foreign institutional investor (FII) inflows after a prolonged selling phase.
The agreement has been months in the making, with U.S. President Donald Trump initially announcing the tariff reduction on Indian goods to 18% from 50%. Prime Minister Narendra Modi also welcomed the announcement, acknowledging the opportunities for mutually beneficial growth.
According to the USTR, goods and services trade between India and the U.S. totaled an estimated $212.3 billion in 2024. This agreement is expected to further strengthen the trade relationship between the two countries, unlocking opportunities for economic growth and cooperation. Goldman Sachs estimates the deal could provide an incremental 0.2 percentage point boost to India's GDP, raising its 2026 growth forecast.