Is the much-anticipated India-US trade deal losing momentum?
As the July 9 deadline imposed by the Trump administration approaches, the prospect of securing an interim trade agreement between Delhi and Washington continues to be a topic of discussion, though it is becoming increasingly complicated by intense negotiations.
While White House Press Secretary Karoline Leavitt suggested that a deal was on the horizon, and Indian Finance Minister Nirmala Sitharaman expressed optimism about a “big, good, beautiful” agreement, negotiators continue to face challenging discussions. This comes in the wake of Trump’s assertion that a trade deal with India is forthcoming and would “open up” the Indian market.
Significant obstacles remain, especially regarding access to agricultural markets, components for the automotive industry, and tariffs imposed on Indian steel.
Indian trade officials have prolonged their visit to Washington for additional discussions, as Delhi indicates “very big red lines” concerning farm and dairy protections, while the US advocates for broader market access. While the outlook continues to be positive, the opportunity to finalise an agreement is diminishing.
According to Ajay Srivastava, a former Indian trade official and head of the Global Trade Research Initiative (GTRI) in Delhi, the upcoming week may be pivotal in deciding whether India and the US reach a limited ‘mini-deal’ or choose to pause negotiations for the time being.
The uncertainty revolves around several critical flashpoints, with agriculture standing out as the most contentious issue.
Two significant obstacles stand in the way of finalising an initial agreement. The primary focus is on the United States’ access to the Indian market for essential agricultural products. According to Richard Rossow, an expert on India’s economy at the Centre for Strategic and International Studies in Washington, safeguarding the country’s fundamental agriculture sector is essential for both economic and political stability.
For years, Washington has advocated for increased access to India’s agricultural sector, viewing it as a significant untapped market. India has staunchly defended its position, emphasising the importance of food security, the livelihoods of its citizens, and the interests of millions of small farmers.
Mr. Rossow highlights that the “second issue is India’s non-tariff barriers.” The increasing number of ‘Quality Control Orders’ (QCOs) in India presents notable challenges for US market access and could complicate negotiations in a potential trade agreement.
The United States has expressed apprehensions regarding what it describes as India’s increasingly stringent import-quality regulations. More than 700 Quality Control Orders (QCOs) have been introduced as part of the initiative to foster a self-reliant India, to reduce low-quality imports, and encourage domestic manufacturing. Suman Berry, a prominent figure at the government think tank Niti Aayog, has characterised these regulations as a “malign intervention,” arguing that they hinder imports and increase expenses for domestic medium and small-scale industries.
Farm exports remain a significant and often overlooked issue in current discussions. The trade between India and the United States in the agricultural sector stands at a modest $8 billion. India primarily exports rice, prawns, and spices, while the United States contributes with shipments of nuts, apples, and lentils. As negotiations on trade continue, Washington is focusing on increasing exports of key agricultural products such as maize, soybeans, cotton, and maize, aiming to reduce its substantial $45 billion trade deficit with India.
Concerns are mounting among experts that tariff concessions may compel India to relax its minimum support prices (MSP) and public procurement policies. These measures are crucial for safeguarding farmers against price volatility by ensuring fair compensation and consistent crop purchases.
No reductions in tariffs are anticipated for dairy products or essential food grains such as rice and wheat, as the livelihoods of farmers remain a critical concern. “These categories are politically and economically sensitive, impacting more than 700 million individuals within India’s rural economy,” states Mr. Srivastava.
A recent paper from Niti Aayog has sparked interest by suggesting tariff reductions on a range of US agricultural imports, such as rice, dairy, poultry, corn, apples, almonds, and genetically modified soybeans, as part of a potential trade agreement between India and the United States. The proposal’s status remains ambiguous, raising questions about whether it represents official government thinking or is merely a policy suggestion without concrete backing.
“Should the United States refuse to reach an agreement unless India includes provisions for access to basic agriculture, it would indicate that American expectations were misaligned from the outset.” Mr. Rossow asserts that any government elected through democratic means will encounter political constraints when it comes to making decisions about commercial policy.
The future of the deal remains uncertain. What developments might unfold next?
Experts, including Mr. Srivastava, suggest that the most probable scenario is a limited trade agreement, reminiscent of the US-UK mini trade deal unveiled on May 8.
The proposed agreement suggests that India could reduce tariffs on various industrial goods, notably automobiles, which has been a persistent request from the United States. Additionally, it may provide restricted agricultural access through tariff reductions and quotas on specific items such as ethanol, almonds, walnuts, apples, raisins, avocados, olive oil, spirits, and wine.
The United States is expected to urge India to engage in significant commercial purchases, extending beyond tariff reductions. This includes a range of products, from oil and liquefied natural gas to Boeing aircraft, helicopters, and nuclear reactors. Washington is reportedly considering easing foreign direct investment regulations in multi-brand retail, a move that could benefit major players such as Amazon and Walmart. Additionally, there may be a push for relaxed rules concerning remanufactured goods.
Mr. Srivastava states that this proposed ‘mini-deal’, if finalised, would concentrate on tariff reductions and strategic commitments, while deferring more extensive free trade agreement matters—such as services trade, intellectual property rights, and digital regulations—for future discussions.
Initially, the trade discussions between India and the United States were anchored in a transparent and equitable framework.
The two leaders, Trump and Modi, articulated a straightforward idea during their inaugural summit this year. According to Mr. Rossow, the United States is set to concentrate on capital-intensive manufactured goods, whereas India will prioritise labour-intensive products. However, circumstances have shifted since then.
Should negotiations fail, analysts suggest that Trump is not expected to restore the significant 26% tariff rate on India. A potential 10% baseline tariff could be imposed on the majority of Indian imports, in addition to the current Most Favoured Nation rates. The Most Favoured Nation rate represents the lowest tariff rate that a member of the World Trade Organisation applies to another member country.
In April, 57 countries encountered these levies, yet only the United Kingdom has managed to secure a deal to date. Focusing on India alone may appear inequitable. “Mr. Srivastava notes that with Trump, surprises remain a possibility.”
