As the July 9th deadline looms for a decision on reciprocal tariffs, former President Donald Trump has hinted at a potential trade deal with India involving "much less tariffs". Trump's statement suggests progress in the ongoing negotiations between the two countries, aiming for a more level playing field for businesses.

Negotiations are focused on a Bilateral Trade Agreement (BTA), with negotiators working to finalize the agreement before the deadline. The urgency stems from the expiration of a 90-day moratorium on proposed tariff hikes, which temporarily halted the re-imposition of 26% reciprocal duties that were initially introduced during Trump's administration on April 2.

India's External Affairs Minister, S Jaishankar, has expressed optimism about reaching a deal. Meanwhile, White House spokesperson Karoline Leavitt indicated that an announcement regarding a trade deal with India could come "very soon".

However, reaching a consensus has not been without its challenges. Indian officials have reportedly toughened their stance on agricultural sector issues as the discussions approach a decisive phase. Agriculture and dairy remain sensitive areas, with India hesitant to make concessions that could impact its rural economy and farmers. India has traditionally maintained a closed dairy sector in its trade agreements.

The US, on the other hand, is seeking duty reductions on various products, including industrial goods, vehicles (particularly electric vehicles), wines, petrochemical items, dairy products, and agricultural goods like apples, tree nuts, and genetically modified crops.

India is seeking tariff reductions in sectors that employ a large workforce, including textiles, gems and jewellery, leather products, apparel, plastics, chemicals, shrimp, and certain agricultural products.

Despite the hurdles, both countries aim to increase bilateral trade to $500 billion by 2030, a significant jump from the current $191 billion. The agreement targets establishing an interim trade arrangement before implementing the first tranche.

The Indian delegation, led by chief negotiator Rajesh Agrawal, has extended its stay in Washington to bridge any remaining gaps.

If the trade talks fail, the 26% tariffs could be reinstated. India is seeking complete relief from these supplementary duties. The US suspended these levies on Indian imports until July 9.

Some experts caution against cutting tariffs on US farm products, as many benefit from subsidies, which could threaten India's food security and expose small-scale farmers to global price volatility.

Both sides are also aiming for a broader BTA by the fall of 2025. India is also urging the US to eliminate safeguard duties, such as those on steel, aluminium and automobiles. In return, India would lower its most favored nation tariffs proportionately.

The potential trade deal comes as the White House has reaffirmed India's importance as a key strategic ally in the Indo-Pacific region.