Protecting India's trade interests with the US

In the uncertain global environment, India committing to a comprehensive FTA would be risky

- AJAY SRIVASTAVA

On February 13, Prime Minister Narendra Modi and United States President Donald Trump agreed to launch negotiations for a bilateral trade agreement (BTA). A BTA is essentially a free trade agreement (FTA) under a different name, similar to India's Comprehensive Economic Partnership Agreement (CEPA) with Japan and its Economic Cooperation and Trade Agreement (ECTA) with Australia. For simplicity, we will refer to it as an FTA from here on.

US Vice-President J D Vance and Prime Minister Modi announced the finalisation of the terms of reference (ToRs) for the FTA on April 21. The ToRs set the ambition levels for the agreement. For instance, in the India-European Union FTA, the ToRs state that tariffs on goods covering 90 per cent of trade value may be eliminated.

While the official ToRs for the US FTA are not public, we can make an educated guess. Since the US does not have a Fast Track Authority, it cannot easily cut tariffs. This means that even after the FTA is signed, Indian exports to the US may still face current import duties and a base 10 per cent tariff on most products.

In contrast, the US could push India to remove tariffs on agricultural products and automobiles, and may also seek to limit Chinese inputs in Indian exports. The US may demand more concessions from India in tariff and domestic policy space without offering much in return.

US dominates the perception battle

The US has succeeded in painting India's tariffs and rules as the reason for its trade deficit, hence demanding that India buy more American goods, oil, and weapons, and dilute regulations restricting India business of Google, Meta, Amazon, Walmart, Tesla, and other US firms.