India and the United States have moved closer to a bilateral trade agreement. In a joint statement issued on February 7 (February 6 in the U.S.), the two governments announced that they had reached “an interim trade deal framework.”
This will lower tariffs, and strengthen energy and economic cooperation between India and the U.S.
In what will come as a relief to Indian traders, the U.S. will reduce the current 50 percent tariff rate on imports from India – this includes a 25 percent tariff imposed on India for purchasing Russian oil that was piled on to the 25 percent reciprocal tariff rate announced earlier – to 18 percent.
According to the joint statement, while “India will eliminate or reduce tariffs on all U.S. industrial goods and a wide range of U.S. food and agricultural products,” the U.S. “will apply a reciprocal tariff rate of 18 percent” on many products imported from India, including textile and apparel, leather and footwear, plastic and rubber, organic chemicals, home décor, artisanal products, and certain machinery.
The joint statement is silent on the 25 percent punitive tariff on India. However, in an executive order signed on Saturday, Trump rescinded the 25 percent penalty tariff, albeit conditionally.
In the joint statement, the two governments also committed “to provide each other preferential market access in sectors of respective interest on a sustained basis,” and to “address non-tariff barriers that affect bilateral trade.”
“Recognizing the importance of working together to resolve long-standing concerns, India also agrees to address long-standing non-tariff barriers to the trade in U.S. food and agricultural products,” it said.
Importantly, it commits India to purchasing “$500 billion of U.S. energy products, aircraft and aircraft parts, precious metals, technology products, and coking coal over the next 5 years.”
The agreement on an interim trade deal framework has come after many rounds of negotiations.
It was on February 13 last year that India and the U.S. agreed to begin talks aimed at reaching a Bilateral Trade Agreement (BTA). Talks commenced, but a deal proved elusive. In July, a 25 percent tariff on Indian goods came into effect. Even as a stunned India was grappling with the implications of this tariff rate, Trump struck India with another blow. In August, he slapped India with an additional 25 percent tariff as penalty for purchasing oil from Russia. This took total tariffs on Indian exports to a whopping 50 percent—among the highest in the world.
Then, on February 2, Trump announced a trade deal on Truth Social. The joint statement came five days later. More talks are in the pipeline, but a final trade deal is now clearly visible on the horizon. The two governments are expected to sign a formal BTA in March.
The interim trade deal has evoked a mixed response in India. The Indian government’s response is publicly celebratory. India’s Prime Minister Narendra Modi said the deal would create fresh opportunities for Indian farmers, entrepreneurs and start-up innovators. India’s Commerce Minister Piyush Goyal said the pact would open a “US$30 trillion market for Indian exporters.”
The “slashing of the tariff rate from 50 percent to 18 percent provides a major relief to Indian exporters,” an official of the Federation of Indian Export Organizations told The Diplomat. While admitting that the 18 percent tariff is “still high,” he claimed that “traders, who have been struggling with the disruption in trade for almost a year, are heaving a sigh of relief.” Besides, “since the 18 percent tariff rate on India is lower than or equal to that imposed on other South and Southeast Asian countries, Indian exporters will get an edge against competitors.”
Nitin Jain, CEO and Director, Kotak Mahindra Asset Management, Singapore, told the Indian business daily, Financial Express, that the tariff rate of 18 percent is “almost half the tariffs on Chinese goods and lower than other Asian peers. Coming quickly on the back of the India – EU FTA and with 20 plus other trade agreements with large economies/ trading blocks, this puts India in the pole position in the race to China +1 opportunity in global supply chains.”
Not everyone is impressed or enthused.
Although the trade deal speaks of “a common commitment to reciprocal and balanced trade based on mutual interests,” it is one-sided and benefits the U.S. more than India. For example, India will have to import goods worth $500 billion from the U.S. over a five-year period, but there is no such commitment from the latter.
Again, while India “will eliminate or reduce tariffs on all U.S. industrial goods and a wide range of U.S. food and agricultural products,” the U.S. “will apply a reciprocal tariff rate of 18 percent on Indian exports.”
Describing the framework deal as an “uneven exchange,” Ajay Srivastava, former trade negotiator and founder of New Delhi-based think tank Global Trade Research Initiative, pointed out that “while the U.S. has eased tariffs, it has secured far-reaching commitments from India on agriculture, regulation, digital policy, security alignment, and large-scale purchasing – concessions that go well beyond trade.”
The implications of the deal for India’s agriculture sector is of concern. While the Modi government has repeatedly said that the agriculture and dairy sectors will remain “completely protected” from foreign competition, there is apprehension. Even if the government has agreed only to a partial opening of the sensitive dairy and agricultural sector, giving access to American farmers would destroy the livelihood of millions of farmers. Farmers’ groups are already calling for Goyal’s resignation and for the prime minister to desist from implementing the deal. Mass protests by powerful farmers’ unions can be expected in the coming months as details of the deal and its implications for farmers unfold.
Particularly controversial is the executive order on India and Russian oil.
While announcing the rescinding of the 25 percent penalty tariff, the executive order states that India has “committed to stop directly or indirectly importing Russian Federation oil.” It also states that “it will purchase United States energy products from the United States, and has recently committed to a framework with the United States to expand defense cooperation over the next 10 years.”
It is unclear whether India has indeed made these commitments. The Modi government has not disclosed anything to this effect. Neither has it issued a statement on Trump’s executive order on India and Russian oil. While India’s purchase of Russian oil has indeed dropped in recent months – it fell to its lowest level in two years in December 2025 – Delhi maintains that it will diversify its sourcing of oil according to the international situation.
However, if Delhi has indeed committed to halting oil purchases from Russia, as the executive order claims, it represents a significant undermining of its sovereign decision making relating to energy security, as it compels India to halt purchasing oil from Russia and buy oil from the U.S. instead. What is more, the executive order clearly states that the lifting of the penalty tariff is contingent on India halting oil trade with Russia. If India “resumes” oil imports from Russia – and the U.S. will be “monitoring” India’s moves – Washington would “reimpose” the 25 percent penalty tariff.
If the Modi government has agreed to halt the purchase of Russian oil under pressure from Trump – former Indian diplomats have described this as “bullying” – this would deal a severe blow to India’s policy of guarding its strategic autonomy. It would essentially force India to make strategic decisions impacting its energy and defense security on the orders of the U.S. Halting Russian imports is sure to ruffle the feathers of Moscow, which has been India’s diplomatic and defense partner for decades.
For the short-term benefit of sealing a trade deal with an unreliable Trump, is India harming its long-term security interests? The Trump and Modi governments have portrayed the reduction in tariffs to 18 percent as a concession to India, which they are not.
