June 25, 2025
Tariff cuts under the pact will make US goods more competitive in India, particularly in energy, agriculture, defence, and aviation
The US has paused its proposed 26% reciprocal tariff on Indian goods for 90 days starting April 10, amid intensified negotiations
CRISIL cautions that India’s exports may not rise significantly, as key items like pharma and garments already enjoy duty-free access
Imports of US LNG, agricultural goods, and defence equipment are expected to increase, aligning with India's growing needs
India’s trade dynamics with the United States may undergo a significant shift. CRISIL Research projects a narrowing of India’s trade surplus, currently at $41.18 billion, as both nations move closer to finalising a bilateral trade agreement (BTA).
According to CRISIL’s Quickonomics analysis, the first phase of the pact is likely to be concluded by September 2025. The agreement is expected to reduce tariffs, enhancing the competitiveness of US goods in the Indian market, especially in sectors such as energy, agriculture, defence, and aviation. With India’s average tariffs higher than those of the US, the BTA could favour American exporters.
While the US imposed a 26% reciprocal tariff on Indian goods in April 2025, it has paused the measure for 90 days starting April 10, maintaining a 10% baseline duty during this period. Talks between the two countries have since intensified, with officials indicating meaningful progress in areas like digital trade, market access, customs facilitation, and sanitary and technical standards. An interim deal could be sealed before the July 9 deadline, with India pushing for complete exemption from the retaliatory tariffs.
The bilateral trade between India and the US reached $131.84 billion in FY25, making India the US’s largest trading partner. However, CRISIL warns that while imports from the US are likely to rise under the BTA, India’s exports may not benefit substantially. This is because many of India’s top exports, such as pharmaceuticals and garments, already enter the US market duty-free.
India’s increasing energy needs, particularly in liquefied natural gas (LNG), may create strong synergies with US supply capabilities. CRISIL notes that LNG offers more pricing stability and suitability for long-term contracts than crude oil. In agriculture, India may import more US products like walnuts, pistachios, and cranberries, though broader access remains a point of contention.
Defence is another potential area for growth. While India continues to invest in its domestic defence manufacturing, it remains one of the largest arms importers globally. The world’s top arms exporter, the US, has intensified defence ties with India, including through the INDUS-X initiative launched in 2023.
Despite potential pressure on India’s trade surplus, CRISIL sees room for export growth in labour-intensive sectors such as textiles, gems, and jewellery, as well as in high-value items like smartphones and pharmaceuticals. The BTA is being negotiated as a multi-sector agreement, with both sides viewing it as a strategic step toward deeper economic cooperation.
Officials familiar with the matter described the talks as constructive and indicated that both nations are working towards an agreement that ensures early wins and long-term balance.
Source: Economic Times