India–US Interim Trade Deal: Tariff Truce Masks a Deeper Reordering of India’s Market and Policy Space

By R. Suryamurthy

India’s newly announced interim trade arrangement with the United States may ease immediate tariff pressure on exporters, but beneath the headline relief lies a far more consequential shift—one that redraws India’s market access commitments, regulatory autonomy and strategic alignment in ways that largely favour Washington.

Unveiled through a joint statement late on February 6, the framework is being pitched by both governments as a breakthrough and a stepping stone toward a full-fledged Bilateral Trade Agreement (BTA).

In practice, trade economists describe it as a carefully choreographed pause in tariff hostilities that trades short-term relief for long-term concessions by New Delhi across agriculture, industrial tariffs, standards-setting, digital trade and economic security.

See Also: Moscow Pushes Back on Trump’s Oil Claim, Says India Free to Import Russian Crude Despite India-US Trade Deal

“This is not a rebalancing of trade,” said Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI). “It is a restructuring of India’s policy commitments under the cover of tariff rollback.”

Tariff relief with strings attached

At the centre of the deal is Washington’s decision to reduce so-called reciprocal tariffs on around 55% of Indian exports. Duties that had escalated to as high as 50% will be brought down to 18%, easing pressure on sectors such as textiles, garments, leather, chemicals, engineering goods, gems and handicrafts.

These tariffs—imposed unilaterally by the U.S.—had significantly eroded India’s export competitiveness over the past year. Their rollback offers immediate breathing space, particularly for labour-intensive sectors.

Commerce Minister Piyush Goyal welcomed the move, saying it would support MSMEs and strengthen India’s participation in global supply chains.

But the relief comes with limits. The United States has not reduced its most-favoured-nation (MFN) tariffs on a single product. Any future easing—covering high-value items such as generic pharmaceuticals, aircraft components or diamond processing—has been deferred to later negotiations and made conditional on India delivering its side of the bargain.

“Washington is undoing damage it caused itself,” Srivastava said. “India, meanwhile, is locking in permanent concessions.”

India opens its market wide

In exchange, India has committed to eliminate or significantly cut MFN tariffs on all U.S. industrial goods and a broad swathe of agricultural and food products. These include almonds and other tree nuts, fresh and processed fruits, soybean oil, wine and spirits, dried distillers’ grains (DDGs), and animal feed sorghum.

Farm unions and policy analysts warn that these commitments expose Indian farmers to intensified import competition at a time of already volatile rural incomes. Soybean oil imports, in particular, could undercut domestic oilseed producers, while fruit imports may hit horticulture clusters in Maharashtra, Himachal Pradesh and Jammu & Kashmir.

On the manufacturing side, tariff reductions on electronics components, solar inputs and machinery risk weakening the protective scaffolding underpinning India’s production-linked incentive (PLI) schemes.

See Also: When Growth Pays but Population Collects: How the 16th Finance Commission Deepens India’s North–South Fiscal Divide

“These tariffs were not accidental,” said a former commerce ministry official. “They were policy instruments. Once dismantled, they cannot be selectively rebuilt.”

Partial Section 232 relief

The agreement also offers selective relief from U.S. national security tariffs imposed under Section 232 of U.S. trade law.

Tariffs on Indian aircraft and aircraft parts—earlier swept into steel, aluminium and copper proclamations—will be removed. India will also receive a tariff-rate quota for automotive parts impacted by U.S. national security duties imposed in 2019.

Yet pharmaceuticals, one of India’s most competitive export sectors, remain in limbo. Any relief hinges on an ongoing U.S. Section 232 investigation into pharmaceutical imports, leaving India’s generics industry vulnerable to future trade action.

“Pharma is where India needed certainty,” Srivastava said. “Instead, it gets a question mark.”

Standards, regulation and sovereignty

Beyond tariffs, the framework commits India to dismantle a range of non-tariff measures long criticised by Washington.

These include easing controls on U.S. medical devices, removing import licensing for American ICT products, and deciding—within six months—whether U.S. or international testing and certification standards will be accepted for selected sectors.

The government has framed this as regulatory cooperation. Finance Minister Nirmala Sitharaman said harmonisation would improve ease of doing business without compromising national interest.

Trade experts are less sanguine. Accepting foreign standards, they argue, risks subordinating domestic regulatory systems—particularly in health, food safety and agriculture—to external certification regimes.

“This is where sovereignty quietly erodes,” Srivastava said. “Standards are power.”

Digital trade and strategic alignment

The framework also commits both sides to negotiate “ambitious” digital trade rules under the proposed BTA. While details are sparse, analysts expect U.S. pressure on India’s digital services taxes, data governance framework and future regulation of global technology firms.

More striking is the language on “economic security alignment”. The agreement envisages cooperation on export controls, investment screening and responses to the “non-market policies of third parties”—a phrase widely read as a reference to China and other U.S. strategic rivals.

“This is not just trade policy,” Srivastava said. “It is geopolitical embedding.”

The $500 billion import pledge

India has also signalled its intent to purchase $500 billion worth of U.S. goods over the next five years, spanning energy, aircraft, technology, precious metals and coking coal.

Prime Minister Narendra Modi described the announcement as a major boost to bilateral ties. Analysts, however, note that India currently imports roughly $45 billion annually from the U.S., and that large-ticket purchases—such as aircraft—depend on private sector decisions.

“It makes for a good headline,” Srivastava said. “But the math doesn’t work.”

A tactical truce

Viewed together, the interim agreement appears less a reset than a tactical ceasefire—one that pauses tariff escalation while binding India to deeper market opening and strategic commitments.

As talks move toward a full BTA, this framework sets the negotiating floor. Whether India can rebalance the deal, reclaim policy space and extract meaningful reciprocity remains uncertain. For now, the tariff war may be on hold—but the terms of engagement have clearly shifted. 

This report is from 5Wh news service. NewsGram holds no responsibility for its content. 

[VS]

Suggested Reading: