The Centre has discussed the minute details of preferential tariff reductions for the US through both a trade pact and on an MFN basis for sectors including agriculture and automobiles — areas that would benefit US exporters were India to reduce tariffs further. To be sure, countries can grant duty cuts to one another’s imports on a preferential basis in a free trade agreement (FTA).
“There have been discussions on giving concessions on the MFN and FTA basis,” said an official, as India and the US aim to conclude the first tranche of their Bilateral Trade Agreement (BTA) by fall this year.
India Agreed to Cut Duties: Trump
This assumes significance as US President Donald Trump claimed on Friday that India will significantly reduce tariffs on American imports, saying New Delhi imposed “massive” trade barriers and that “somebody is finally exposing them for what they have done”. “India charges us massive tariffs. Massive. You can’t even sell anything in India… They have agreed, by the way, they want to cut their tariffs way down now because somebody is finally exposing them for what they have done,” Trump said.
Mutually Beneficial Deal
In response, New Delhi said that it was committed toward undergirding a trade and market-access infrastructure that would be mutually beneficial. A spokesperson for the ministry of external affairs said, “During the Prime Minister’s visit to the United States last month, both sides had announced that they would negotiate a mutually beneficial multi-sector bilateral trade agreement…
The two governments are in the process of advancing discussions on the BTA.” “Our objective through the BTA is to strengthen and deepen India-US two-way trade across goods and services, increase market access, reduce tariff and non-tariff barriers, and deepen supply chain integration between the two countries.” Diplomatic sources told ET that the issue of tariffs and an April 2 deadline for likely punitive measures figured during Commerce and Industry Minister Piyush Goyal’s recent US visit.
During Trump’s first term, the two countries had discussed a mini-trade deal based on MFN status. India has reduced its average applied tariffs significantly for key developed countries like Australia, UAE, Switzerland, Norway, etc., under recently concluded mutually beneficial bilateral trade agreements. Similar negotiations are currently underway with the EU and the UK, among other partners. The ongoing discussions with the US should be seen in this context, sources said.
The Centre has also considered offering tariff rate quotas on gold purchases from the US. US secretary of commerce Howard Lutnick on Friday said that India should bring down its high tariffs for his country as Washington aims to pursue “something grand” in a bilateral trade deal between the two countries.
Lutnick insisted on a “broadbased trade agreement” under which India would bring down tariffs across the board rather than negotiate a product-wise trade deal that may take “forever”. He also said New Delhi should be “smarter” and consider opening up sensitive sectors like agriculture, which it has traditionally protected to safeguard small farmers, and that a deal could be crafted with specific quotas and limits to balance the interests of both sides.
“With a chapter on tariff concessions on goods, one needs safeguards such as chapters on Technical Barriers to Trade, and Sanitary and Phytosanitary Measures,” the official said. These measures deal with technical regulations, standards, and testing and certification procedures, and food safety, and animal and plant health standards. Sources said that Prime Minister Modi and President Trump agreed to designate senior representatives to advance the negotiations. They added that the representatives are to work towards increasing market access, reducing tariff and non-tariff barriers and deepening supply chain integration.
Accordingly, an Indian delegation led by Goyal visited Washington this week, which engaged with the US Commerce Secretary, the US Trade Representative and their teams. Discussions on tariffs and other aspects of trade that were highlighted during PM’s visit to Washington are an ongoing process. There are specifics which have been mentioned on various issues as part of the negotiation, said people familiar with the matter.
It is also natural that both countries have their interests and sensitivities, and these will be legitimate matters for a discussion, they said. Since the discussions have just begun, it would be premature to talk about details, said another person.
Farm, Tech Concerns
Experts said that the US is exerting pressure on India to accept trade demands that largely favour American interests and its emphasis on “everything being on the table” could lead to concessions that harm India’s strategic interests. They insisted that agriculture, passenger cars and other sensitive sectors must remain excluded. Experts said that opening up India’s agricultural sector to the US also has a livelihood dimension besides mere trade issues, and pointed to low tariffs on top US agricultural exports to India.
Washington, however, imposes some of the highest non-ad valorem tariffs on agricultural imports, they said. Market watchers also cautioned against a comprehensive trade deal with the US as it would open the door to demands beyond tariff reduction such as government procurement, agricultural subsidies, patent laws, and unrestricted data flows — all of which India has consistently opposed. “With India’s total agriculture, dairy, and marine exports to the US amounting to just $5 billion, retaliatory US tariffs would not significantly harm India. If India concedes today, more products will be added to the US list in the future,” said Ajay Srivastava, founder, Global Trade Research Initiative (GTRI).
Single-Digit Import Duties
Trade experts also ruled out duty elimination for any technology-led manufacturing and machinery and suggested that India retain single-digit import duties on such products besides enforcing strict Quality Control Orders to check any substandard products from entering the country.
“India has already reduced tariffs on many goods, but it can’t give zero duty benefit on every product on an MFN basis. It must retain minimum tariffs on products like mining machinery, electronics and electrical goods,” said a Delhi-based trade expert.
“There are products which India isn’t buying from China and they can come from the UK or US. These are the products where India can give MFN concessions,” the experts said, adding that dairy could be a non-negotiable area for India.
