India - US: India Expects Multi-Phase Trade Deal
STORIES, ANALYSES, EXPERT VIEWS
India has reportedly sought full exemption from the 26 per cent tariff, levied by the US on April 2. As per an official, the two nations that are already discussing a bilateral trade agreement, might announce the BTA before July 8. This development comes after Commerce and Industry Minister Piyush Goyal’s visit to the US, where he held meetings with US Trade Representative (USTR) Jamieson Greer and US Commerce Secretary Howard Lutnick.
The official said India’s endeavour to protect its sensitive sectors may entail some quota or minimum import price (MIP).
‘Talks are moving positively. Before July 8, we are looking at concluding an interim deal before the first tranche. It will include goods, non-tariff barriers, some areas of services also like digital. We are trying that the 26 per cent additional duty and the 10 per cent baseline tariff should not be there for India,’ the official told PTI. India is seeking concessions for its labour-intensive sectors such as textiles and leather.
Both the countries have fixed a deadline by the fall of this year to conclude the first phase of the BTA. While the Trump administration would need approval of the US Congress to bring tariffs below the most favoured nation rates, it could remove reciprocal tariffs imposed on a number of countries, including India.
The US imposed a 26 per cent reciprocal tariff on Indian goods, but then suspended it for 90 days, till July 9. New Delhi and Washington officials are keen to take advantage of the 90-day tariff pause window to advance the trade talks. However, the 10 per cent baseline tariff imposed by America remains in place.
India is seeking concessions for labour-intensive sectors like textiles, gems and jewellery, leather goods, garments, plastics, chemicals, shrimp, oil seeds, chemicals, grapes, and bananas, while US wants concessions in sectors like automobiles (electric vehicles in particular), wines, petrochemical products, dairy, agriculture items such as apples, tree nuts and GM (genetically modified) crops, and even certain industrial goods.
The US is India’s largest trading partner with bilateral trade valued at $131.84 billion. India had a trade surplus with the US of $41.18 billion in goods in 2024-25. The US accounts for India’s 18 per cent total goods exports, 6.22 per cent in imports, and 10.73 per cent in the country's total merchandise trade.
Three-stage process
India is discussing a US trade deal structured in three tranches and expects to reach an interim agreement before July, when President Donald Trump’s reciprocal tariffs are set to kick in.
The interim deal will likely cover areas including market access for industrial goods, some farm products and addressing some non-tariff barriers, such as quality control requirements. The talks are still ongoing and there’s no clarity if the Trump administration has agreed to a three-stage process for a trade deal.
The second stage of an India-US deal may be a broader and more detailed agreement timed for around September to November, Indian officials said, likely covering the 19 areas outlined in the terms of reference agreed by the two sides in April. The timing for this part of the deal may be aligned with an expected visit by Trump to India for the Quad leaders’ summit.
The final leg of the deal will likely be a comprehensive agreement that would follow once there’s approval from the US Congress, possibly concluded only next year, Indian officials familiar with the matter said.
Trump’s executive order to reduce prescription drug prices, could hit India’s generics industry
Meanwhile, Trump’s recent executive order, aimed at reducing prescription drug prices for Americans, is expected to have significant implications for the global pharmaceutical market, particularly for India’s generics industry.
The order seeks to align the prices Americans pay for prescription drugs with those in other high-income countries, which could disrupt both pricing models and market access, according to industry leaders.
By linking US drug prices to those paid in similar economies, the order could alter how pharmaceutical companies price their products in the US, potentially affecting the operations of Indian companies in this market.
“India accounts for nearly 40% of the generics procured by the US. Given that generics help contain healthcare costs, it is difficult to see how imposing a large tariff would support the United States healthcare system,” said Kiran Mazumdar-Shaw, Executive Chairperson of Biocon Ltd, highlighting India’s role in supplying generics to the US market.
The Executive Order, which directs the US Trade Representative and Secretary of Commerce to ensure foreign countries are not engaging in practices that undercut market prices, seeks to establish a “Most-Favoured-Nation” (MFN) pricing mechanism.
This would mean that US Medicare payments for certain drugs would be linked to the lowest prices paid by other high-income nations, such as Canada, the United Kingdom, and Germany. Critics argue that while the policy may lower drug prices for US consumers, it could harm foreign drug manufacturers, particularly those based in India, experts have indicated.
Pharmaceutical industry experts have also expressed concerns that any new tariffs or price-setting measures could disrupt the established supply of affordable medicines from India to the US, potentially affecting both costs and access.
'Big Beautiful Bill’: bad deal for NRIs
India is also concerned about the implications of the ‘One Big Beautiful Bill’ that details the Trump government's plans to reform taxes and cut expenditure, non-citizens sending money abroad would be required to pay 5% tax.
Sending money from the US to India thus, might get expensive come 2026. This is of special significance to Indians who are among the largest migrants in the US. More than 2.9 million Indian immigrants lived in the US as of 2023, making the country the second most popular global destination for Indians after the United Arab Emirates, as per Migration Policy Institute data. The data further says that Indians make up the second largest foreign-born group in the US after Mexicans, accounting for 6% of the 47.8 million foreign-born residents as of 2023.
"The measure is aimed at protecting the outflow of US dollars and encouraging local investments while generating an additional stream of revenue," says Kuldip Kumar, partner, Mainstay Tax Advisors.
Big impact: The proposed 5% tax will shave off a small part of the money being sent to India. This is expected to hit those who send money regularly.
In 2023-24, India received $118.7 bn in remittances, with the US accounting for 27.7% ($32.9 bn), up from 22.9% in 2016-17. A 5% levy would impose $1.6 bn in added annual costs on Indian remitters. In the short term, we could see tightening dollar supply in India's domestic market, and likely prompting more frequent RBI interventions to stabilise the rupee.
Sudarshan Motwani, founder & CEO of BookMyForex, says this will have a big impact on those who have gone to the US to work. "These people need to send money to India. They will all be subjected to the new 5% tax. ”
The share of the US in India's total inwards remittances is the largest-27.7% in 2023-24 (approximately $32 billion), up from 22.9% in 2016-17, as per Reserve Bank of India data.
"This measure could impact the flow of funds into Non-Resident External (NRE) accounts and investments in India's booming premium real estate market, which has been increasingly attracting capital from Indians abroad," adds Kumar.
Global financial institutions have consistently warned against taxation of remittances. World Bank has flagged such policies as regressive, distortionary and developmentally counterproductive. Empirical evidence indicates that taxing formal remittances often drives senders toward informal channels - opaque, unregulated conduits that evade both taxation and financial oversight.
Tariffs may not trouble India's economic growth: Moody's
A Moody’s Ratings' report meanwhile, nevertheless, highlighted Wednesday that India is better equipped than many emerging markets to withstand the impact of US tariffs and global trade disruptions, thanks to strong domestic growth drivers and a low reliance on goods exports.
The ratings agency highlighted that government initiatives—such as boosting private consumption, expanding manufacturing capacity, and increasing infrastructure investment—will help cushion the economy against weakening global demand.
Easing inflation could also pave the way for interest rate cuts, further supporting growth. Meanwhile, ample banking sector liquidity continues to enable lending, the report noted.
“India’s large domestic economy and limited exposure to global goods trade put it in a stronger position to absorb external shocks,” Moody’s said.
Impact of India-Pakistan tensions: The note also touched upon geopolitical risks, stating that recent India-Pakistan tensions are more likely to weigh on Pakistan’s economy than India’s. The key economic hubs in India are far from the conflict zones, and bilateral economic ties remain limited.
However, a prolonged escalation could lead to increased defence spending, which might slow fiscal consolidation efforts and weigh on government finances, as per the report.
Recent signs of tensions
While Indian officials say trade talks remain on track, there have been signs of tension in recent days. New Delhi appears to be adopting a tougher stance in negotiations, threatening retaliatory tariffs on US goods. Trump has also claimed that India offered to slash tariffs on US goods to zero, while downplaying any sense of urgency to reach a trade deal.
The US leader’s comments about his involvement in negotiating a ceasefire between India and Pakistan have also been a source of frustration in New Delhi. Trump has repeatedly said he used trade as a bargaining tool to secure a truce between India and Pakistan after four days of military conflict that had brought the two South Asian rivals close to an all-out war.
A consumers’ point of view: consumers should not be treated as collateral damage
So, in the overall scheme of things, while India is said to be on the brink of a historic trade deal that could mean more choice, lower prices, and better products for Indian consumers, but, Shrey Madaan (Indian Policy Associate, Consumer Choice Center) cautions “buried under headlines about 'zero tariffs’ are fineprint quotas, selective exemptions, and old-school protectionism dressed up as strategic policy. What is being sold as trade liberalization might still end up coddling legacy industries at the expense of the very people the economy is supposed to serve.
"Tariffs don’t just restrict trade; they restrict choice, inflate prices, and punish innovation. Whether it’s a safer car part, a more effective cancer drug, or a cutting-edge piece of hardware, the end user always pays the price of protectionism. That is not sovereignty; that is the government putting a premium on your needs. Indian consumers have long borne the cost of high import duties…….”
The goal of U.S.-India trade should therefore, “not just be geopolitical alignment. It should be economic abundance. Prime Minister Modi and President Trump discussed growing bilateral trade to $500 billion by 2030. That ambition is welcome. But it won’t be achieved through half-measures or asterisks on ‘zero-tariff' promises. Yes, India must support its industries, but not by treating consumers as collateral damage….”
