India-US trade deal: After months of stalemate, India and the US have finalised a trade deal that reduces tariffs imposed on New Delhi to 18%, placing the country at an advantageous position compared to other export competitors like China, Pakistan, Bangladesh, and Vietnam. The development is significant because Indian goods entering the US market face sharply higher duties, with total tariffs rising to as much as 50% from August 27, 2025.In August 2025, Donald Trump had announced a 25% tariff on Indian exports, along with an additional 25% punitive levy that was linked to India’s purchases of Russian crude oil and defence equipment. Now, Trump has announced that this will come down to 18%. White House officials have been quoted in various reports as saying that the 25% tariff for Russian crude will be removed as well. Prime Minister Narendra Modi welcomed the move, saying he was pleased that “Made in India products will now have a reduced tariff of 18%.”Also Read | India-US trade deal: Top 7 points Trump says he agreed on with PM ModiWhat do we know about the India-US trade deal so far and why is it important? We take a look:
India-US Trade Deal Explained: Top Points
Details of deal: At present, the precise terms of the agreement have not been disclosed. Greater clarity is expected once the United States issues an executive order addressing the tariff changes, while the formal trade agreement text is likely to spell out which sectors fall under the arrangement. Both documents are still awaited.Announcing the deal on Monday, Trump said that India has committed to buying more than $500 billion worth of American goods. As per a report by Reuters, the purchases would span key sectors including petroleum, defence, electronics, pharmaceuticals, telecom equipment and aircraft, with some agricultural products also covered. US agriculture trade secretary Brooke Rollins also confirmed that the deal provides greater access for US agricultural exports to India, a move aimed at reducing America’s farm trade deficit.India gets back competitive edge against rivalsTariffs are taxes or customs duties that are levied by a country on goods imported from abroad. These charges are paid by the importer to the government and are usually passed on to buyers in the form of higher prices. Import duties raise the cost of foreign goods in the domestic market. Competitiveness is also influenced by other factors, including the tariff levels faced by rival exporting countries such as Bangladesh at 20%, Vietnam at 20% and Thailand at 19%, as well as product quality and compliance with standards. Pakistan faces 19% tariffs and China has a levy of 34%. Hence, with the India-US trade deal, Indian exports to the US become more competitive compared to its South Asian regional peers.Also Read | Trump’s surprise announcement: How US blinked and said yes to trade deal with IndiaWhat Trump said“It was an Honor to speak with Prime Minister Modi, of India…We spoke about many things, including Trade…He agreed to stop buying Russian Oil, and to buy much more from the United States and, potentially, Venezuela.This will help END THE WAR in Ukraine, which is taking place right now, with thousands of people dying each and every week! Out of friendship and respect for Prime Minister Modi and, as per his request, effective immediately, we agreed to a Trade Deal between the United States and India, whereby the United States will charge a reduced Reciprocal Tariff, lowering it from 25% to 18%.They will likewise move forward to reduce their Tariffs and Non Tariff Barriers against the United States, to ZERO. The Prime Minister also committed to ‘BUY AMERICAN,’ at a much higher level, in addition to over $500 BILLION DOLLARS of US Energy, Technology, Agricultural, Coal, and many other products.”
India US trade deal timeline
Lack of clarity on Russian crudeWhile Trump has claimed that India will stop buying Russian crude, no such official confirmation has come from Indian oil. Russia is currently India’s largest source of Russian crude, but with a fairly diversified basket of energy partners, India may not find it difficult to switch away from Russian oil. A White House officials quoted in an ANI report said that the 25% penal tariff is being removed on India, but it is conditional on India completely stopping Russian crude imports. Indian refiners are reportedly awaiting clarity from the government on the same.US is India’s Largest Trading PartnerBetween 2021 and 2025, the United States was India’s biggest trading partner in goods. It accounted for roughly 18% of India’s exports, about 6.22% of its imports, and nearly 10.73% of total two-way trade. In 2024-25, bilateral merchandise trade reached $186 billion, which included $86.5 billion in exports and $45.3 billion in imports.India posted a trade surplus with the US of $41 billion in 2024-25, compared with $35.32 billion a year earlier and $27.7 billion in 2022-23. In services trade, India recorded exports of around $28.7 billion and imports of $25.5 billion, resulting in a surplus of $3.2 billion.Taken together, India’s overall trade surplus with the United States stood at approximately $44.4 billion.Estimates indicate that in the calendar year 2024, the United States imported services from India worth $40.6 billion. Of this, computer and information technology services accounted for $16.7 billion, while business management and consulting services contributed $7.5 billion.India-US trade in commoditiesIn 2024, India’s shipments to the United States were led by pharmaceutical formulations and biological products valued at $8.1 billion. Other major export items included telecom equipment worth $6.5 billion, precious and semi-precious stones at $5.3 billion, petroleum products at $4.1 billion, gold and other jewellery made of precious metals amounting to $3.2 billion, automobiles and auto components valued at $2.8 billion, cotton ready-made garments including accessories at $2.8 billion, and iron and steel products at $2.7 billion. Recently, smartphones have also become a big element of India’s exports basket to the US, but these remained exempt from Trump’s tariffs.On the import side, India sourced crude oil worth $4.5 billion from the US, followed by petroleum products valued at $3.6 billion, coal and coke at $3.4 billion, cut and polished diamonds at $2.6 billion, electrical machinery worth $1.4 billion, aircraft, spacecraft and related parts at $1.3 billion, and gold imports also amounting to $1.3 billion.Also Read | India-US trade deal: Top stocks that will benefit from reduced 18% tariffs – check sector-wise listWhich sectors will benefit? Industries that rely heavily on labour, including apparel, leather and non-leather footwear, gems and jewellery, carpets and handicrafts, stand to gain from the move. 50% US tariffs had been weighing on exports from these segments, and any easing could help revive shipments.What experts are saying:Apparel Export Promotion Council Chairman A Sakthivel said the development is expected to strengthen apparel exports, draw new investments across the supply chain and further establish India as a dependable global sourcing destination.Federation of Indian Export Organisations President SC Ralhan noted that the agreement could result in the immediate release of orders that had been deferred earlier, especially in labour-intensive industries such as garments, textiles, leather and footwear.Manoj Mishra, Partner and Tax Controversy Management Leader, Grant Thornton Bharat said, “The India–US trade deal, cutting reciprocal tariffs on Indian exports from 50% to 18%, is a positive development particularly for MSME-led sectors such as textiles and apparel, gems and jewellery, and leather, which were hardest hit by recent tariff hikes. The move reinforces India’s position as a reliable long-term sourcing partner for the US, supporting order recovery and restoring buyer confidence. Alongside parallel market-diversification efforts, including the India–EU FTA, the deal could meaningfully enhance export competitiveness, boost affected sectors, and support broader economic growth. However, a predictable, transparent, and well-notified tariff framework will be critical to sustaining export momentum and deepening India–US trade ties.”
India’s recent FTAs
Reacting to the announcement, Moody’s Ratings said,“The reduction of the US tariff rate on most Indian goods will reinvigorate India’s goods export growth to the US, which remains the country’s largest goods export market, accounting for about 21% of India’s total goods exports for the first eleven months of 2025. Lower tariff rate will also be credit positive for labor intensive sectors such as gems, jewelry, textiles and apparel, which rank the top export sectors. However, pharmaceuticals and consumer electronics, the other two major export sectors, had been exempt from the 50% high tariffs and therefore are unlikely to be affected by the tariff reduction.Even though India has reduced its purchase of crude oil from Russia in recent months, it is unlikely to cease all purchases immediately which could be disruptive to India’s economic growth. A complete shift toward non-Russian oil could also tighten supply elsewhere, raise prices and pass through to higher inflation given that India is one of the world’s largest oil importers.”
