Why the India-U.S. trade deal remains elusive
This report is excerpted from CNBC’s ‘Inside India’ newsletter this week, which brings you up-to-date, informative news and market commentary on the emerging powerhouse. Subscriber Here.
big story
India-US relations looked set to reach new heights in early 2025.
Prime Minister Narendra Modi was among the first foreign leaders to meet newly elected US President Donald Trump in February, just hours after he signed a plan to impose “reciprocal tariffs”.
As leaders of the world’s largest and oldest democracies shook hands and pledged to double bilateral trade to $500 billion by 2030, Modi said: “Our teams will work to sign a mutually beneficial trade agreement very soon.”
By December, India was among the highest-taxed countries in the world; The taxes even dwarf those imposed on China, which was Trump’s target during the election campaign.
WASHINGTON, DC – FEBRUARY 13: US President Donald Trump and Indian Prime Minister Narendra Modi meet in the Oval Office at the White House on February 13, 2025 in Washington DC.
Andrew Harnik | Getty Images News | Getty Images
Sonal Varma, Nomura’s chief economist for India and Asia, formerly Japan, said India and the US have “strong economic incentives” to reach a deal. He said the US needs reliable supply chain partners outside China, India needs to offer scale and capability, and New Delhi needs market access to Washington to pursue its export-led growth goals.
However, negotiations appear to have hit a wall. Despite U.S. Ambassador to India Sergio Gor, a U.S. trade delegation completed another round of talks in New Delhi last week without making any progress. described It’s a “wonderful” call between Modi and Trump.
“I think the biggest hurdle is political will,” said Mark Linscott, former deputy U.S. trade representative and senior advisor to the U.S.-India Strategic Partnership Forum, adding that “tariffs and agriculture are always difficult.”
One way to convince Trump, he suggests, would be a “grand gesture” like “an offer to buy US fuel ethanol or sustainable aviation fuel.”
While the United States is trying to improve its trade balance with the world’s fastest-growing major economy by increasing sales of energy and agricultural products, India has only partially agreed on the energy supply front and is resisting access to its politically sensitive agricultural sector.
“There is resistance in India to some grains and other meats and products,” U.S. Trade Representative Jamieson Greer told the Senate earlier this month. [a] “It’s a very tough nut to crack.”
thorny problems
India is under US pressure to reduce its imports of Russian oil, while Washington claims this enables Moscow to withstand Western economic sanctions pressure and continue its war against Ukraine.
In August, the US imposed an additional 25% tariff on imports from India to deter New Delhi from buying Russian oil, raising total duties to 50%.
India has not officially stated that it will reduce oil shipments from Russia.
The foreign ministry earlier this month refused to intervene in oil supplies from private refineries, saying, “Our energy supply depends on the dynamics of the global market, and it is also imperative that we provide energy to our 1.4 billion people at affordable prices.” he said.
Reuters reported On Wednesday, it was reported that Indian refiners continued to buy oil from Russian companies that were not part of US sanctions in November and were “offering deep discounts”.
Experts believe a peace deal to end the conflict between Russia and Ukraine would cancel “punitive” 25 percent tariffs on India, and ensuring US access to the agricultural market will remain a key issue holding up the trade deal.
Nomura’s Varma said agriculture was the “main obstacle” as the US wanted India to buy genetically modified crops and allow dairy exports; Both face strong opposition from the country’s domestic farm lobby, which wields significant political influence.
This becomes even more important when larger Indian state elections are scheduled to be held next year in West Bengal, Tamil Nadu and Kerala, where there are powerful farming lobbies, and then in 2027 in the country’s largest agricultural state, Uttar Pradesh.
bear the cost
While New Delhi and Washington negotiate a mutually beneficial deal, delay appears costly.
“There are real economic implications of the deal not continuing for a long period of time,” said Pradeep Gupta, chairman and managing director of Anand Rathi Share & Stock Brokers, adding that capital flows were an immediate concern due to “significant volatility” reflected in the weakening rupee.
The absence of a trade deal has kept markets “somewhat cautious,” especially when it comes to “US-dependent” sectors, Gupta said, adding that once there is clarity on the trade front, there will be a “meaningful decline in uncertainty premia.” In other words, Indian stocks may see a sharp rise.
His firm estimates that a 50% tax could reduce India’s GDP growth by about 0.5 percentage points and have a meaningful impact on export volumes. Goldman Sachs expects Indian economy to be in good shape It was impacted by 0.6 percentage points due to US tariffs.
India’s exports fell sharply in October but mostly trended upward despite the introduction of tariffs.
“India weathered the 50% tariff shocks pretty well and was able to resolve them, but ultimately the U.S. remains the number one export destination for Indian products,” Michael Kugelman, the Atlantic Council’s senior fellow for the South Asia region, told CNBC’s “Inside India.”
“India will have to make some politically risky decisions,” he said, adding that it was still unclear whether a deal could be reached anytime soon.
Discussing India’s 2026 prospects, Samiran Chakraborty, Citi’s chief India economist, said last week that the lack of a trade deal with the US “puts a serious burden on India.”
Meanwhile, experts in the United States say tariffs are contributing to inflation, exacerbating affordability problems for families across the United States.
“These punitive tariffs [on India] “This hurts U.S. consumers, who will spend more on a wide range of products,” said Wayne Winegarden, senior fellow in economics at the Pacific Research Institute.
Winegarden said, “The arbitrary, unnecessary and senseless trade war created by President Trump creates difficulties for the US-India relationship,” and warned that this deterioration in the relationship is bad for both countries.
As some small U.S. businesses take on high-interest loans and other types of debt to pay for President Trump’s new tariffs, many business owners are warning they fear financial disaster.
Analysts from India also say American importers of pharmaceuticals, machinery and even consumer goods are experiencing higher input costs and supply chain frictions.
But despite all the economic arguments in favor of the trade agreement, talk about With India an “important strategic partner” and Prime Minister Modi a “great friend”, experts do not see major progress towards a deal by the end of the year.
“[At] At the beginning of the year, we thought India would be the first country to sign a trade agreement, and now at the end of the year, it has become the last country without a trade agreement,” said Citi’s Chakraborty.
Will the New Year bring fresh ideas to the table from both sides? Watch this space.
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Rajiv Batra, JPMorgan’s head of Asia equity strategy and co-head of global emerging equities, said his firm is overweight on Indian equities and expects an earnings recovery and potential double-digit growth in the coming quarters.
Ajay Sahai, managing director and CEO of the Federation of Indian Export Organizations, said that despite the lack of a US-India trade deal, about 50% of India’s exports are still duty-free and exporters are largely absorbing the costs while waiting for duties to be eased.
Michael Kugelman, senior fellow for the Atlantic Council’s South Asia region, said Prime Minister Narendra Modi’s visit to Jordan, Ethiopia and Oman is an opportunity to strengthen trade ties at a time when India faces trade uncertainty with the US.
you need to know
India’s goods exports increased in November. In November, exports increased by 19% annually to $38.13 billion, driven by the sharp improvement in the country’s trade with the United States. The country’s goods trade deficit, which reached a record level of approximately $41.7 billion in October, fell to $24.5 billion in November, exceeding analysts’ forecasts.
Inflation rises in November. Consumer inflation rose to 0.71% in November from an all-time low of 0.25% in the previous month, due to increases in prices of vegetables, eggs, meat and fish, spices and fuel. Inflation rose in both urban and rural areas.
Domestic production of Oran lands magnets. It was reported that the Ministry of Heavy Industry launched an incentive plan worth 72.80 billion rupees ($805 million). To promote domestic production of rare earth permanent magnetsIndia aims to reduce its dependence on imports.
quote of the week
Currently the latest estimates show India losing around $250 billion due to air pollution in 2024 alone…we may not walk on the pavement and we may not shop as much, people may stay away from Delhi because from a tourism perspective, [it is] so incredible.
— Gaurav Gupta, global managing partner, Dalberg Advisors
In the markets
in India on Thursday Stylish 50 It gained 0.12%, while BSE Sensex gained 0.1% as of 11:15 am local time. While Nifty 50 recorded a decline for two consecutive weeks, Sensex closed last week lower. Year-to-date, Nifty has gained over 9% while Sensex has gained over 8%.
The benchmark 10-year Indian government bond yield fell slightly to 6.595%.
— Nur Hikmah Md Ali
approaching
December 19: December monetary policy meeting minutes; weekly forex reserves data
December 22: Gujarat Kidney and Super Private IPO opens
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