The recently announced trade deal between the United States and India is poised to significantly expand export opportunities for India, ranging from agricultural products like spices and tea to industrial goods and seafood. The interim agreement, a result of discussions between President Trump and Prime Minister Modi, demonstrates a commitment to reciprocal and balanced trade based on mutual interests.

Key Highlights of the Trade Deal

• Tariff Reductions: India will eliminate or reduce tariffs on all U.S. industrial goods and a wide range of U.S. food and agricultural products, including dried distillers' grains (DDGs), red sorghum, tree nuts, fresh and processed fruit, soybean oil, wine, and spirits. The United States will lower the reciprocal tariff on Indian goods from 25% to 18%.
• Increased Purchases: India has committed to purchasing over $500 billion of U.S. energy, information and communication technology, agricultural products, coal, and other goods.
• Digital Trade: India will remove its digital services taxes and negotiate bilateral digital trade rules to address discriminatory practices.
• Rules of Origin: The agreement includes negotiating rules of origin to ensure the benefits primarily accrue to the United States and India, preventing third countries from indirectly benefiting.

Impact on Key Sectors

• Agriculture: The deal is expected to boost agricultural trade between the two countries. India has granted duty-free access to the U.S. for tea, coffee, spices, and fruits. Reduced tariffs on items like dried distillers grains (DDG) and red sorghum could revive trade flows. Indian farm exports worth $1.36 billion will now enter the U.S. with zero additional duties.
• Textiles: The reduction in reciprocal tariffs from 50% to 18%, along with recent trade deals with the UK and EU, provides a multi-year advantage to boost earnings and cash flows by enhancing the export base.
• Machinery: Lower duties are expected to help Indian companies scale up exports of industrial equipment and capital goods.
• Other Sectors: The deal is expected to boost growth across textiles, leather, gems and jewellery, pharmaceuticals, home décor, machinery, and technology-led industries. Zero additional duty access has been secured for industrial exports valued at $38 billion, covering aircraft parts, generic drugs, and elementary auto parts.

Economic Implications

Goldman Sachs Research expects India's real GDP to grow at 6.9% year-on-year in 2026 and 6.8% in 2027. The new trade deal is likely to lower trade-related uncertainty and unlock a private investment cycle. The reduction in tariffs is expected to provide an incremental growth boost of 0.2 percentage points of GDP. The deal could also help to improve India's current account deficit by boosting exports.

Potential Challenges and Concerns

Some experts have raised concerns about the deal's impact on India's strategic autonomy and the potential for unequal benefits. Concerns exist regarding the impact of increased imports of items like DDGs and soybean oil on domestic oilseed processors and soybean farmers. Monitoring of India's oil purchases from Russia by the U.S. raises concerns about eroding economic sovereignty.

Overall

The trade deal between the U.S. and India presents a significant opportunity for India to expand its export runway across various sectors. While challenges and concerns remain, the agreement has the potential to strengthen economic ties, boost GDP growth, and create new opportunities for Indian businesses.