Short-term costs, potential long-term gains

Over time, India’s imports from the US can impart a different structural character to the Indian economy and enlarge its global comparative advantages

- AMITENDU PALIT

AJOINT STATEMENT released by the US and India confirm that they reached an interim agreement on the framework for reciprocal and mutually beneficial bilateral trade. The statement suggests this as the first step towards both countries working out a broader bilateral trade and investment agreement (BTA), for which negotiations began on February 13, 2025.

For India, the immediate prospects do not appear very encouraging. However, if certain enabling conditions are created by the BTA, then there are prospects of considerable long-term gains.

Most Indian exports will face tariffs of most-favoured nation (MFN) plus 18% in the US market. Thus, Indian exports will broadly be facing as much tariffs as most of their competitors from Southeast and South Asia with marginal differences. Compared with just the MEN tariffs that existed in February 2025, when India and the US launched negotiations, the eventual tariffs are much higher.

India, however, can derive satisfaction from potential tariff removals on several exports to the US that are currently attracting Section 232 tariffs on national security grounds. These include those on aircraft and aircraft parts, as well as automotive parts, with the latter subject to a tariff rate quota. The statement also provides hope for future removal of tariffs on Indian exports of generic pharmaceuticals. Furthermore, more tariff cuts are possible in the medium term, with the US affirming its intent to consider India’s similar request during the future negotiations on the BTA.