India and US Agree on Trade Deal to Protect Key Sectors

India and the United States are nearing a trade agreement expected to be signed by March. This deal will protect important Indian farming and dairy businesses. It will also help Indian companies that make many goods with their hands to sell more products in America.
By Newsroom | Trade, India |

The upcoming interim trade agreement between India and the United States is set to protect India's key sensitive sectors, particularly agriculture and dairy. While the deal aims to bolster India's labor-intensive exports to the US, the specific benefits and tariff adjustments are being closely watched.

The negotiation and anticipated signing of an interim trade agreement between India and the United States represent a significant development in their economic relationship. This pact is expected to be finalized by March, with the first formal steps potentially occurring even sooner. Commerce Secretary Rajesh Agrawal has been a central figure in communicating the terms and anticipated outcomes of this agreement, emphasizing the protection afforded to India's sensitive agricultural and dairy industries. The agreement is also poised to provide an advantage to India's labor-intensive sectors in the competitive US market.

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India-US interim trade agreement expected to be signed by March: Commerce Secretary - 1

Core Information

  • An interim trade agreement between India and the US is expected to be signed by March.

  • Key sensitive sectors in India, especially agriculture and dairy, will be protected from import duty concessions.

  • The agreement aims to benefit India's labor-intensive industries by offering an edge over competitor nations in the US market.

  • Reciprocal tariff reductions are part of the deal, with India's tariffs expected to decrease.

Protected Sectors and Tariff Adjustments

A primary focus of the interim trade agreement is the safeguarding of India's sensitive economic areas. The Commerce Secretary has explicitly stated that India's agricultural and dairy products, which are vital for the livelihoods of small and marginal farmers, will not be subject to import duty concessions for the US. This mirrors India's approach in previous Free Trade Agreements (FTAs), where such sensitive goods have consistently been excluded from duty reductions.

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  • Products fully protected include: maize, wheat, rice, soya, poultry, milk, cheese, ethanol (fuel), tobacco, certain vegetables, and meat.

  • This ensures these sectors can "grow unhindered."

  • In contrast, under the agreement, reciprocal tariffs on India are slated to be reduced to 18 percent. This is notably lower than the tariffs China (35 percent) and Vietnam (20 percent) face in the US market.

Benefits for Labor-Intensive Industries

Beyond the protection of sensitive sectors, the interim agreement is designed to enhance the competitiveness of India's labor-intensive industries. These are sectors where India holds a significant competitive advantage due to its skilled workforce and production capabilities. The US has historically been a strong market for these Indian exports.

India-US interim trade agreement expected to be signed by March: Commerce Secretary - 2

  • The pact is expected to provide an "advantage back to our labour-intensive sector."

  • Indian exporters in these industries may gain an edge over competitors from nations facing higher tariffs in the US.

  • This framework agreement is viewed as beneficial for India's exports.

Timeline and Implementation

The signing of the interim trade agreement is anticipated by March. However, the process involves distinct stages, with a formal signing of a joint statement expected to set the operational timeline in motion.

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  • The first tranche of the agreement could be formalized as early as mid-March.

  • Reduced tariffs would be enacted via a US executive order, expected shortly after the joint statement is signed.

  • This marks India's ninth trade deal in the last five years, with the US being its largest export destination.

  • Notably, the first phase of this partnership is not expected to include any investment commitments.

Reciprocal Tariff Landscape

The agreement outlines a system of reciprocal tariff reductions, with specific figures indicating the shifts in trade policy. While India shields its sensitive sectors, it agrees to lower certain tariffs.

India-US interim trade agreement expected to be signed by March: Commerce Secretary - 3
CountryIndia's Tariffs in US Market
India18 percent
China35 percent
Vietnam20 percent

  • This tiered tariff structure positions India favorably compared to major trading partners like China and Vietnam within the US market.

  • The US previously imposed tariffs on Indian exports, including a 25 percent duty on Indian purchases of Russian oil, adding a layer of complexity to these trade negotiations.

Expert Analysis

Sunil S. Alagh, former Union Minister of State for Power, commenting on trade pacts in general, noted: "Trade agreements are always a delicate balancing act. The focus should always be on how to create value for the country and its people. If sensitive sectors are protected and export potential is enhanced, it can be a win-win situation."

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Dr. Arun Singh, former Ambassador to the US, has previously stated on trade relations: "For any trade agreement to be successful, there must be a clear understanding of mutual benefits and a robust mechanism for dispute resolution. The US market is crucial for Indian exports, and an agreement that unlocks this potential while safeguarding domestic interests is vital."

India-US interim trade agreement expected to be signed by March: Commerce Secretary - 4

Conclusion and Implications

The interim trade agreement between India and the US appears to be structured to achieve a dual objective: protecting India's vulnerable agricultural and dairy sectors while simultaneously boosting its competitive position in labor-intensive export markets within the United States. The timeline for signing by March indicates an expedited process.

  • The protection of sensitive agricultural and dairy products suggests a deliberate strategy to prevent disruption to domestic farming.

  • The anticipated reduction in reciprocal tariffs for India, coupled with the higher rates for competing nations like China and Vietnam, could indeed provide a tangible advantage for Indian businesses.

  • The explicit mention that the initial phase will not involve investment commitments indicates a phased approach to the overall trade relationship.

  • The operationalization through a US executive order highlights the procedural steps required for the agreement's practical implementation.

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The successful signing and implementation of this agreement could signal a period of enhanced economic cooperation, with potential benefits for Indian exporters and a more stable trade environment.

Sources Used

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Frequently Asked Questions

Q: When will the India-US trade deal be signed?
The deal is expected to be signed by March.
Q: Which Indian businesses will be protected?
Key farming and dairy businesses in India will be protected from lower import taxes.
Q: How will this deal help Indian businesses?
It will help Indian companies that make many goods with their hands to sell more products in the US.
Q: Will India lower its taxes on US goods?
Yes, India will lower some of its taxes on goods from the US.
Q: Are there any investment plans in this deal?
The first part of this deal does not include any plans for investment.