US-India trade deal hangs in the balance as India may go slow
·
Modi may delay signing and implementation of any
trade deal with the US, as it may affect both Vote & Note Bank; may not
sign any BTA-I before Dec’25
·
India has to impose 10-15% tariffs on US goods to
get 15-20% tariffs from the US, so that the total tax component remains at par
after considering sales tax
·
India also has to provide free & fair access
to its market for US agri, farm, and MSME products and a level playing ground for
domestic producers to compete globally
As India navigates a delicate dance between Trump
tariffs and domestic politics, Prime Minister Modi's decision to skip the ASEAN
Summit in Kuala Lumpur has fueled speculation that a much-anticipated phase one
Bilateral Trade Agreement (BTA) with the United States could be delayed until
after the Bihar assembly elections (Mid-November’25). With U.S. President Trump
set to attend the October 26-28 summit, Modi's virtual participation—citing
Bihar election campaigns and scheduling conflicts—avoids a potential
face-to-face meeting with Trump that might force premature concessions amid
ongoing tariff tensions.
A Deal
Driven by Tariffs and Oil: Progress amid Hurdles
Negotiations for the BTA, kick-started after
Modi's February 2025 White House visit with Trump, aim to slash U.S. tariffs on
Indian exports from a punitive 50% (25% base plus 25% Russian oil penalty) to
reported 15%, providing relief to India's $66 billion merchandise export
sector. In return, India has signaled cuts on tariffs for 55% of U.S. imports
worth over $23 billion, including zeroing out select goods, while insisting on
a review clause after one year for flexibility. Indian Commerce Minister Piyush
Goyal, speaking on October 23, emphasized that talks are "progressing
well" but no pact will compromise Indian farmers, fishermen, or MSMEs—key
"red lines" remain in the negotiations.
Electoral
Calculus: Bihar's Farmers and MSMEs Hold the Key
With Bihar polls looming—first phase on November
6, second on November 11, and results on November 14—the Modi administration is
treading cautiously. Agriculture employs over 70% of Bihar's workforce, and
MSMEs (1.5 million strong) dominate textiles, leather, and food processing.
Opening markets to cheaper U.S. corn, soymeal, or auto parts could squeeze
margins by 5-10%, alienating rural voters and urban job creators central to the
NDA's (BJP-JD(U)) campaign. Opposition leader Tejashwi Yadav has branded the
BTA a "sellout," amplifying fears on social media where users
speculate delays to dodge backlash: "Modi won't announce before Bihar;
after, no elections for months."
Modi's 12-rally blitz, starting October 24 in
Samastipur, touts welfare like ₹10,000
aid to 21 lakh women and infrastructure investments, but any BTA optics of
"weakness" against Trump's "bullying" could fracture NDA
unity—especially
with seat-sharing at 101 each for BJP and JD(U). Analysts see the summit snub
as a sidestep: A Trump meet might spotlight unresolved issues, handing ammo to
rivals in a state where backward castes and youth unemployment are flashpoints.
External Affairs Minister S. Jaishankar will lead the delegation, a "rare
downgrade" from Modi's usual in-person role.
Corporate India echoes these concerns. Giants like
Maruti Suzuki and Tata Motors fear 4-6% EBITDA erosion from cheaper U.S. EVs
and parts, while agri-processors like Godrej Agrovet brace for 5-8% margin
squeezes. Post-2024 electoral bonds scrapping, funding via trusts (₹1,075 crore in 2023-24, mostly to BJP) could
amplify lobbying for phased implementations or exemptions, blending economic
unease with political leverage.
Broader
Reforms and Geopolitical Tightrope
India's protectionist past—high tariffs shielding
inefficient farms and industries—necessitates structural overhauls in land,
labor, law, energy costs (higher than U.S./EU/China), and GST simplification to
level the playing field. Borrowing rates must drop to 4-5% for global
competitiveness, lest cheaper U.S. mechanized agri products overwhelm
fragmented Indian holdings. Implementation could lag 9-12 months post-signing
to cushion domestic producers.
Geopolitically, Trump wields "triumph
cards": tariffs, H-1B visas, and a proposed 25% cess on Indian services
via the HIRE Act, countering India's 18% IGST on U.S. services. India plays the
"China friendship" card for derisking, not decoupling, while
diversifying trade. The U.S.-EU axis bolsters 25% of India's FX reserves ($149B
net from exports/remittances), vital for oil imports from sanctioned suppliers
like Russia (now in rupees/yuan). Wild rumors of a CIA plot against Modi at the
SCO summit—thwarted by Putin—add thriller-sequel flair but underscore U.S.
"interests over friends." As Trump quips, "The U.S. doesn't need
India, but India needs the U.S."
Pragmatism
over Haste
The BTA promises $500 billion bilateral trade by
2030, diversifying chains and aiding U.S. agri offloads, but Bihar's 7.5 crore
voters—and NDA's projected majority—trump geopolitics for now. Expect a
post-poll announcement on Trump's terms, with delayed rollout; As one source
quipped, "Flexibility via review mechanisms ensures no side feels
cornered." In Modi's playbook, safeguarding "vote bank"
(farmers/MSMEs) and "note bank" (corporates) is paramount—trade deals
be damned if they risk the throne. With no official responses from Goyal or
USTR as of October 24, the balloons float, testing Dalal Street's mood while
Main Street braces.
India's
Commerce Minister Piyush Goyal in Berlin: Firm Stance on Trade Deals Amid
Global Pressures
On October 24, 2025, during his address at the
Berlin Global Dialogue in Germany, India's Commerce and Industry Minister
Piyush Goyal reiterated New Delhi's commitment to strategic autonomy in trade
negotiations, emphasizing that India will not accept preconditions from trading
partners that dictate its foreign relations or sign any deal under duress. This
comes amid heightened US sanctions on Russian oil giants Rosneft and
Lukoil—announced just a day prior on October 23—which directly impact India's
energy imports; and ongoing Bilateral Trade Agreement (BTA) talks with
Washington targeting a first tranche by November 2025.
Key
Statements from Goyal
v No
Conditions on Third-Country Ties:
Goyal stated unequivocally that "India is not to accept conditions of any
trading partner not having relations with other countries." This appears
aimed at the US, where tariff relief has been linked to phasing out discounted
Russian oil purchases (currently 34% of India's crude needs). The minister
underscored India's right to maintain diversified partnerships, including with
Russia, without external interference—a nod to strategic autonomy amid
geopolitical tensions.
v No Rushed
Deals: In a direct rebuttal to
perceived US deadlines, Goyal added, "India will not sign any trade deal
in a hurry or with 'gun to our head'." He highlighted ongoing discussions
with the US as "constructive" but insisted on thorough consultations
to protect domestic interests, such as agriculture, MSMEs, and energy security.
This aligns with India's "red lines" in talks, including safeguards
against import surges in sensitive sectors like dairy and ethanol.
v Ongoing
Dialogue and Progress: "We
are in dialogue with the United States on a trade deal. Our teams are engaged.
Recently, Commerce Secretary Rajesh Agrawal visited the US and met his
counterparts. We continue to engage with the US, and talks are
progressing." He noted five rounds of talks completed since February 2025,
with Goyal himself leading a delegation to New York last month.
v Hope for
Near-Term Resolution: "We hope
to work towards a fair and equitable trade agreement in the near future."
This aligns with the $500 billion bilateral trade target by 2030, despite
tensions from Trump's tariffs.
v No Rushed
or Coerced Deals: In a stronger
tone on October 24, Goyal clarified: "We'll not sign any deal in a
hurry... We don't enter into deals with a gun to our head." He added that
India "will not accept conditions from any trading partner of not having
relations with other countries," a veiled reference to US pressure to curb
Russian oil buys. "India has never decided who its friends will be based
on any other considerations other than national interest."
v Safeguards
for Domestic Interests: Goyal
reiterated protections for farmers, fishermen, and MSMEs, stating no agreement
will compromise these "red lines." Talks are in a "cordial
atmosphere," but free of deadlines.
Recent
Developments: Secretary
Agrawal's October 13 meeting with US Ambassador-designate Sergio Gor and
September 16 talks with Assistant USTR Brendan Lynch signal momentum. However,
the US's latest Russian sanctions (effective post-November 21) could disrupt
1-1.5 million barrels/day of Russian imports, pushing India toward US energy
while inflating costs by $2-3 billion monthly.
Global Outreach: Goyal's Berlin trip also advanced
India-EU FTA talks (14th round stalled October 10) and Indo-German ties,
including meetings with Schaeffler and Mercedes-Benz CEOs.
Goyal's
balanced tone—optimistic yet unyielding-India will not sign any deal at
gunpoint
On Friday,
October 24, 2025, following his address at the Berlin Global Dialogue, India’s
Commerce and Industry Minister Piyush Goyal reaffirmed India’s cautious yet open approach to trade
negotiations, particularly with the United States, European Union, and United Kingdom.
Speaking to reporters after bilateral discussions with German counterparts,
Goyal’s statements address mounting international pressure on India to reduce
its reliance on discounted Russian crude oil imports amid recent US sanctions
on Rosneft and Lukoil, while outlining a pragmatic timeline for potential
agreements.
Key
Statements from Goyal
·
No Rushed Trade Deals: Goyal reiterated, "India will not sign any
trade deal in a hurry," emphasizing a deliberate pace to protect national
interests. This stance aligns with his earlier remarks on October 24, rejecting
deals signed "with a gun to our head," reflecting India’s resolve to
avoid coercive terms.
·
Pressure to Scale Back Russian Crude: He acknowledged that the EU, UK, and U.S. are
pressuring India to scale back imports of discounted Russian crude, a
significant component of India’s energy supply (34-40% of crude needs, saving
$3.8-5 billion annually). This pressure intensified with the US sanctions
announced on October 23, targeting Russia’s oil giants and threatening
secondary penalties on third-country buyers like India post-November 21
wind-down.
·
Ongoing US Dialogue and Timeline: "We are still in dialogue with the United
States of America, and trade deals can be closed in the short term—6
months," Goyal stated, suggesting a window until April 2026 for the
India-US Bilateral Trade Agreement (BTA) first tranche, originally targeted for
November 2025.
Broader
Implications for India's Trade Strategy
Goyal's Berlin remarks echo a consistent playbook
seen in stalled EU FTA talks (14th round ended October 10 without a
breakthrough on agriculture/CBAM) and the recently signed but unimplemented UK
FTA (awaiting parliamentary ratification). They reinforce:
·
Electoral Caution: With Bihar elections looming (November 6-11), any
perceived "surrender" on Russian ties or import openings could
alienate rural voters and the sugar lobby (protesting potential US ethanol
inflows).
·
Corporate Pushback: Indian firms in autos and agri-processing fear
5-10% margin erosion from cheaper US goods, amplifying calls for phased
implementation.
·
Global Diversification: India eyes alternatives like the UAE and Africa
for oil, while advancing FTAs with EFTA (implementation late 2025) and GCC
(resumed talks).
In essence, Goyal's assertive messaging positions
India as a principled negotiator—prioritizing sovereignty over speed—in a
multipolar world where trade is increasingly a geopolitical tool.
India-US
Bilateral Trade Agreement Nears Completion: Key Issues Converging, Focus Shifts
to Legal Drafting
On October 24, 2025, a senior Indian government
official confirmed that India and the United States are "very near"
to finalizing the first tranche of their proposed Bilateral Trade Agreement
(BTA), with most contentious issues resolved and negotiations proceeding
smoothly without new hurdles. The focus has now shifted to refining the
agreement's language, as both sides aim to wrap up the initial phase during the
fall of 2025, potentially announcing it at the ongoing ASEAN Summit (October
26-28). This update follows five rounds of talks since March, building on
directives from Prime Minister Narendra Modi and President Donald Trump in
February 2025 to double bilateral trade to $500 billion by 2030 from the current
$191 billion.
Progress
and Converging Issues
v Substantive
Convergence: The official
noted that "both sides are converging on most issues" and "there
are not many differences left for resolution," signaling breakthroughs in core areas like tariff reductions
and market access. Negotiators are now "sorting out the language of
the agreement," indicating a transition from substantive haggling to
technical finalization. Recent virtual discussions on October 23 further
advanced this, with no major sticking points emerging.
v Timeline and Optimism: While Commerce
Minister Piyush Goyal emphasized no rushed deals—stating India "will not
sign any trade deal in a hurry" and rejecting conditions on third-country
ties like Russian oil—the official's remarks suggest a breakthrough is
imminent. Goyal's recent Berlin comments (October 24) extended the potential
timeline to 6 months (until April 2026), but sources indicate the November
deadline remains feasible for the first phase.
v Key
Sectors in Focus: The deal targets
slashing US tariffs on Indian exports (e.g., textiles, gems, shrimp) from ~50%
(including 25% punitive levies tied to Russian oil) to 15-16%, offering relief
to exporters hit by a 20% drop in September shipments. In return, India may
expand quotas for US agricultural goods (non-GM corn, soymeal) and energy
imports, while safeguarding "red lines" for farmers, fishermen, and
MSMEs.
Challenges
and Broader Context
Despite the optimism, US pressure persists for
India to scale back Russian crude imports (34% of needs, saving $3.8-5 billion
annually), exacerbated by October 23 sanctions on Rosneft and Lukoil that could
disrupt 1-1.5 million barrels/day post-November 21. Goyal acknowledged this
push from the EU, UK, and US but reiterated India's autonomy: "We are
still in dialogue with the United States... and trade deals can be closed in
the short term—6 months." This aligns with recent delegations: Commerce
Secretary Rajesh Agrawal's Washington visit (October 13-18) and Goyal's New
York trip last month.
This development positions the BTA as a pivotal
step in US-India ties, potentially offsetting US-China tensions while aiding
India's diversification.
U.S.
Official noted India’s Measured & Slow Pace in Trade Negotiations
October 25, 2025, a senior U.S. official commented
on the ongoing India-US Bilateral Trade Agreement (BTA) negotiations, noting
that progress is being shaped by "the
pace of India's ambition on deals, which is not always speedy." This
statement, made during a late-night briefing in Washington following the latest
round of talks, reflects a nuanced recognition of India's cautious approach
amid pressure from recent U.S. sanctions on Russian oil giants Rosneft and
Lukoil, announced on October 23. The remark comes as both nations edge toward
finalizing the first tranche of the BTA, potentially by the fall of 2025, with
an announcement possibly at the ongoing ASEAN Summit (October 26-28).
Context
and Implications
v India’s
Deliberate Strategy: The U.S.
official’s comment aligns with Commerce Minister Piyush Goyal’s recent
assertions in Berlin (October 24), where he emphasized, "India will not
sign any trade deal in a hurry" and rejected conditions tied to
third-country relations, such as scaling back discounted Russian crude imports
(34-40% of India’s needs). Goyal’s extension of a potential timeline to six
months (until April 2026) contrasts with earlier optimism for a November 2025
close, reflecting India’s focus on safeguarding "red lines" for
farmers, MSMEs, and energy security.
v U.S.
Sanctions Pressure: The sanctions,
freezing assets of Rosneft and Lukoil and threatening secondary penalties
post-November 21, aim to disrupt Russia’s oil exports, directly impacting
India’s $3.8-5 billion annual savings. The U.S. official’s remark suggests
patience with India’s balancing act, though it hints at frustration with delays
amid a 3%+ oil price surge.
v Negotiation
Progress: A senior Indian official
on October 24 confirmed that talks are "very near" completion, with
most issues converged and negotiators refining language. The U.S. stance
indicates willingness to accommodate India’s pace, focusing on a deal that cuts
tariffs on Indian exports from 50% to 15-16% in exchange for expanded U.S.
agri/energy access.
Broader
Dynamics
v Geopolitical
Balance: The U.S. comment reflects
a diplomatic tone, avoiding direct criticism as PM Modi attends the ASEAN
Summit virtually, where a Modi-Trump sideline could seal the deal. India’s
autonomy on Russian ties remains a sticking point, with Goyal noting ongoing
dialogue and a six-month window.
v Market
Sentiment: Nifty’s 300+ point rally
earlier this week on deal hopes may waver if delays persist, with X posts from
traders like @CapitalGains85 flagging "pace concerns" impacting
investor confidence.
v Global
Context: Similar patience is
evident in EU and UK FTA talks, where India’s deliberate approach delays
resolutions amid domestic election cycles (e.g., Bihar, November 6-11).
The U.S. official’s remark underscores a pragmatic
partnership, with India’s measured ambition shaping a deal that balances trade
gains ($500 billion by 2030) against sovereignty.
US-Russia
Sanctions and BTA Leverage: The timing is telling
The fresh US sanctions freeze assets of Rosneft
and Lukoil—key suppliers to Indian refiners like Indian Oil Corp. and
Reliance—potentially halting 1-1.5 million barrels per day of imports after a
November 21 wind-down. This escalates pressure on India to accelerate
diversification toward US crude (already 10% of needs), a core BTA demand.
Goyal's comments signal resistance, potentially delaying the agreement's first
phase despite optimism for $500 billion bilateral trade by 2030.
Theoretically, India saved $3.8 billion in FY25
via Russian discounts, and abrupt cuts could inflate oil prices by 3%+
globally, adding $2-3 billion to India's monthly import bill and risking
0.2-0.5% GDP drag. But in reality, Indian private and public (government-owned)
refiners earned a windfall profit by purchasing heavily discounted Russian
crude oil and reselling it mainly to the EU after refining. The then Biden
admin and also the EU designed the so-called Russian oil sanction in a way that
Russia could sell its 'Ukraine war blood tainted black heavy crude oil' to
Indian and Chinese refiners, who can then sell the refined products (mainly
gasoline) to the EU after refining (whitewash). As the EU needs imported oil,
it has no other option but to buy the same tainted Russian oil after being
whitewashed by Indian and Chinese refiners. Now under Trump, the same US policy
suddenly changed as Trump now wants to sell US oil to the EU, although the US
has no additional production capacity for that.
No benefit
for the Indian public from cheaper Russian oil
The energy sector looms large: India, reliant on
discounted Russian crude for 34% of its imports (saving $3.8 billion in FY25),
faces Trump's precondition to phase out these purchases by December 2025 in
exchange for boosted U.S. crude, gas, and ethanol imports. Commerce Secretary
Rajesh Agrawal noted on October 15 that India is open to ramping up U.S. energy
buys if prices suit domestic refiners, but anonymous sources highlight stalled
clarity on biofuels and dairy tariffs. Trump, in a recent TV appearance,
claimed India is "gradually abandoning" Russian oil, aligning with
fresh U.S. sanctions on Rosneft and Lukoil that could disrupt supplies to
Indian refiners like Reliance Industries (RIL).
Agriculture concessions are equally thorny. The
U.S. seeks expanded quotas for non-GM maize (from 0.5 million tonnes annually)
and soymeal to offload surpluses battered by China's import cuts—from $5.2
billion in 2022 to $331 million in 2024—while India grapples with poultry,
dairy, and ethanol demands. Yet, bodies like the Soybean Processors Association
warn of 10-15% local price crashes, hurting farmers already below minimum
support prices (MSP). The sugar lobby, via the Indian Sugar & Bio-Energy
Manufacturers Association (ISMA), is mobilizing against ethanol imports, fearing
a 10-15% hit to mill revenues and echoes of the 2020-21 farm protests.
India made
a policy blunder in approaching Trump 2.0 proactively from day one for a trade
deal.
India may have made a policy blunder by
proactively approaching the Trump admin from day one (January 2025) for a trade
deal, engaging in marathon public meetings. Trump takes this as a sign of
weakness and intensifies his bullying tactics steadily. This happened with
China during Trump 1.0, when President Xi approached Trump proactively for an
early trade deal, and the result was known to all of us. India should have now
followed the current Chinese stance for a tit-for-tat treatment with Trump on
trade, despite having no leverage like China (like rare earth materials). Trump
is now less hawkish on China and more hawkish on India in his 2nd
term.
The Trump admin may have made a realistic
assessment that, together with China, the US has almost 45% of the global
economy and is dependent on each other for prosperity and development. Unlike
Trump 1.0, the US under Trump 2.0 is now seeing China as a big competitor, not
seeking decoupling, but derisking from strategic dependence. China, on the
other hand, is also steadily expanding itself in the last 10-20 years, not only
in trade with other countries to reduce US/EU dependence, but also diversifying
itself from any US dependence, including high-tech and aerospace. China is also
trying to diversify itself from the US on various strategic issues, ranging
from high-end techs/software to airplanes/jet engines.
Is there a
tectonic shift in Trump’s policy towards India?
Although as a sovereign country, India does not
need to explain every time megalomaniac Trump throws an insulting comment, the
reality is that India needs the US and the USD, not the opposite. The US is now
India’s biggest source of USD ~$95B to $100B if we combine both export surplus
and net inward remittances. The US,
under Trump 2.0, no longer needs India against China. Trump 2.0 now
abandons the China decoupling policy, unlike during Trump 1.0, and is now
focusing more on de-risking, treating China as the main superpower competitor
rather than adversary.
China is
now overtaking the US not only
in terms of real wealth, development, prosperity, but also in hi-techs, AI,
chips, quantum computing, 6G, and advanced military hardware & software.
China's indigenous GPRS and operating system have reduced its dependence on the
US. The US now sees China as an equal, if not bigger competitor in both
economic and military, i.e., as the true 2nd superpower in the world
in all aspects; not as a mere military superpower like the old USSR (now
Russia). Thus, Trump 2.0 is now negotiating with a stronger China with a
different approach (3D chess game) than India, which has no leverage (cards)
like China, except the narrative of the biggest democracy and a strategic
partner of the US against adversary China.
The US and China now have almost 45% of global
GDP; both are dependent on each other for prosperity and growth. China is also
the biggest export market for the US, and thus, Trump 2.0 is now no longer
seeking China decoupling, but only strategic derisking. For Trump, China, its
market and supply chain are far bigger and important than 'tiny' India, and
thus Trump 2.0 is now less hawkish on China and harsher on India. Trump now
often praises China for opening up the economy for US goods & services,
unlike 'Tariff King' India, which is very reluctant or rigid to change its
century-old protectionist policies for domestic industries (including MSMEs) and
also the agri/farm/dairy sector (vote bank & note bank politics).
Trump may not sign any BTA with India, unless it
opens the economy almost fully like Japan, South Korea, Indonesia, Vietnam, and
other ASEAN countries with 0% tariff and no stringent (obnoxious) regulations.
As a 'vibrant democracy', India or any main political party may not be ready
yet to sacrifice both the note bank and vote bank for US interests. Trump may
not like India's go-slow, time-consuming negotiation tactics and may also favor
Pakistan more than India because of its high potential rare earth materials
reserve for ~$6T, something which India does not have at present.
Trump’s
tariff tantrum has sent shockwaves through U.S.-India relations. This move, part of Trump’s broader reciprocal
tariff policy, marks a significant departure from over 15 years of U.S. efforts
to court India as a strategic counterweight to China’s ‘growing aggression’. Trump’s
tariffs and work visa policies are not just about trade deficits; they’re a
calculated move to pressure India into reducing ties with Russia and aligning
more closely with U.S. interests. India’s 35–40% reliance on Russian oil (up
from 3% in 2021) and its status as a major buyer of Russian military equipment
have become flashpoints.
Trump also
blinked on India after Modi attended the SCO, and China imposed export restrictions
for REMs.
Modi’s strategy to deepen India-China relations is
a calculated response to Trump’s tariff war and geopolitical pressures, rooted
in India’s pursuit of strategic autonomy and economic resilience. By engaging
China on trade, border de-escalation, and multilateral cooperation, Modi aims
to offset U.S. tariffs, diversify partnerships, and bolster his domestic image.
This pivot serves as leverage against the U.S. by diversifying India’s options
and pressuring Trump to reconsider his approach to preserve India’s role as a
strategic partner. However, India must navigate historical mistrust with China,
manage Quad commitments, and address domestic skepticism to sustain this
balancing act.
Modi's China card is definitely working, at least
partially, but Trump 2.0 now no longer seeks China decoupling. The Trump
administration is now seeking strategic China derisking and cooperation, especially
in rare earth materials and pharmaceuticals (APIs). The Trump administration
does not like India's delaying tactics in trade talks; India has to be decisive
in opening its economy for the US with a lower tariff and GST.
Trump’s ‘Triumph
Card’ over India
Trump may also use a tariff threat on the Indian IT
outsourcing service to ensure a favorable trade deal. The Indian IT service
industry is vital for the Indian middle class and discretionary consumer
spending. Any tariff on it will be far more serious for the economy than
additional secondary tariffs of 25% for Russian oil. Thus, India has to allow
the US for a favorable trade deal, ensuring free & fair access of US goods
into the country with minimal tariffs.
Trump's
reciprocal tariff & sales tax policy
The Trump admin is also considering India's high
GST as another tariff barrier, and thus, at ~17.5% weighted average India
tariffs and 15% IGST, US goods now face 32.5% total tax in India. Against this,
Indian goods are facing 25% normal Federal tariffs and 7.5% average sales tax
in various US states, totaling the same 32.5%. This is Trump's reciprocal
tariffs policy and applies to almost every country/trading bloc, including the
EU.
Under the base case scenario, Trump may reduce
tariffs on Indian goods from 25% to 20%; in that scenario, Indian goods will
face a total 27.50% tax in the US. And India will have to ensure the same total
tax on US goods. Indian IGST on US goods should be around 12.5% on a weighted
average basis, from the previous 15% and thus India has to impose a maximum 15%
average tariffs on all US goods (from the present 17.5%), totaling the same 27.5%
tax. India may also have to withdraw its concept of a higher tax on luxury/sin
goods.
Another issue will be India's 18% GST on most of
the services, including those from the US. Thus, the Trump admin may also want
to impose similar tariffs/taxes on Indian services to promote American
employment in line with Trump's election campaign promise and overall extreme
right MAGA sentiment. Thus, the coexistence of MAGA (Make America Great Again)
and MIGA (Make India Great Again) may be very difficult, even if Trump and Modi
prefer reconciliation rather than protracted escalations.
Also, India has to ensure its producers, especially
MSMEs and farm sectors, are globally competitive rather than protected through
obnoxious tariffs and other regulations. India has to modernize its
agricultural sector to compete with the US or any other advanced economies. But
the fact is that Indian producers are not yet ready to compete with the US or
any other AE at this moment. Thus, Modi may face widespread protests from both
the Vote bank and the note bank (corporate India). And as a mature politician,
Modi may not risk his political future by going for a trade deal with the US
with huge concessions. At the same time, Modi also has to manage Trump’s
potential action to impose service tax/tariffs on Indian outsourcing to ensure
political support from India’s middle class.
Conclusions
Under the best-case scenario, India may get 20-15%
US tariffs against the present 25% under BTA-I (assuming 25% Russian oil
tariffs are temporary); in that scenario, India has to impose 15-10% tariffs on
US goods to match the total tax component after consideration of GST &
state sales taxes. India has to open its economy for US agri & farm products
substantially, if not fully, along with the MSME sector. This is politically sensitive for both Trump
and Modi as it involves domestic political compulsions involving vote banks for
both. Trump is now under huge pressure from the US farmers lobby for his Tariff
policies and subsequent boycott & diversification by China and other
importers. Trump now has to pay almost $30 billion in subsidies to US farmers
for his bellicose policies. Thus, Trump is now pressuring India to open its
economy for US agri & farm products.
On the other side, Modi is also under pressure not
only for domestic politics, but also for economics. Indian exports to the US
have been substantially down since September’25, and almost half a million jobs
are at stake in various states. Although India is now trying to diversify its
exports to various other countries and trading blocs, it will take a longer
time. India should have actively started the export diversification process
long ago in 2015, rather than waiting for Trump 2.0 in 2025.
Overall, India is now trying to engage with the US
in marathon trade talks without any binding BTA, and buying time. India may be
trying to buy time for any definitive BTA and subsequent implementation of the
same. Even if India signs any BTA with the US by December'25, the actual
implementation of the same may be on hold till at least November'26 or even
December'27 to test Trump's political future in the US midterm election and
also to prepare domestic producers for the inevitable competition from US &
global imports, both in terms of quality & affordability.
Although cheaper imports are good for the overall
Indian economy for a lower cost of living, it may not be good for the Indian
producers, least for the initial years; governments has to provide substantial
monetary & fiscal stimulus along with proper process reform to provide a
level playing ground for the Indian producers, so that they can compete with
their US & global counterparts. Thus, PM Modi has to navigate carefully for
the sake of both the vote & note bank. India has to de-risk itself from US
hegemony & unilateralism by ensuring proper inclusive development in the
country, so that people do not try to leave the country for the US, Europe, and
other foreign destinations at the first available opportunity. Modi's
'Viswaguru' image now at stake: If India indeed develops so much, then why are
people leaving the country rather than staying back?
Bottom
line
Trump’s bellicose policies on tariffs and
immigration/work visas are hurting Modi's 'Viswaguru' (Global Teacher) image,
and thus he is now avoiding Trump ahead of the Bihar election; otherwise, Modi
may be seen as a 'weak leader'. And India may also be waiting for the US Supreme
Court (SC) verdict on November 3, 2025, on Trump tariffs; going by Trump's
recent comments, the SC may uphold the lower court verdict that most of Trump's
tariffs are illegal and the US Treasury has to refund the same.
India may also be waiting for the outcome of
US-China trade talks and the Trump-Xi meeting at the ASEAN summit in Malaysia
to be concluded by November 1. If there is a definitive US-China trade deal,
Trump may not give India any additional concessions and vice versa; i.e.,
China's gain may be India's pain, and China's pain may be India's gain as far
as the trade deal with the US under Trump is considered.
