Indian corporates will have been relieved to learn that theirs’ was not one of the more than 20 countries to receive letters from the US president with revised tariff rates (equal to or higher than the ‘reciprocal tariffs’ announced on 2nd April) that are due to come into effect on 1st August.
Barclays analysts Aastha Gudwani and Amruta Ghare reckon this indicates that trade talks between the two countries are moving in the right direction.
Mark Linscott, Senior Fellow with the Atlantic Council’s South Asia Centre says it appears negotiators have concluded the details of an agreement in principle.
“While it is disappointing that the administration has not yet made an announcement of an interim deal with India, there has been a steady stream of reliable reports of progress in those negotiations,” he says.
India Chief Economist Gudwani observes that 50% tariffs on aluminium (and likely copper) may not have a sizable adverse effect on India’s overall exports given the relatively small market share.
“Local media reports suggest that both India and the US have agreed to extend their timeline to finalise the first tranche of the proposed bilateral trade agreement,” she says. “The unresolved issues include critical sectors such as agriculture, dairy, genetically modified seeds and crops, digital trade and medical services.”
The latest quarterly trade report by Indian government thinktank NITI Aayog suggests that based on current assumptions of US trade tariffs, India would have a competitive advantage over other trading partners on more than 60% of its exports to the US.
‘In 2024, the US accounted for over 30% of India’s global exports in electrical machinery, gems and jewellery and pharmaceuticals,’ states the report. ‘Notably, labour-intensive sectors such as apparel and made-up textiles also recorded a high US share – ranging from 31% to nearly 49% – underscoring the strategic importance of the US as both a scale- and value-driven market for India’s export basket’.
NITI Aayog calculates the average tariff differential between Indian and Chinese exports to be 20.5% in India’s favour.
State Bank of India research paints an even more optimistic picture, claiming that even if a deal isn’t agreed and India faces additional 10% tariffs, the country is in a position to gain market share in other areas including chemicals, agricultural goods and processed foods.
China and Singapore – who are the main suppliers of chemicals and pharmaceuticals to the US in the region – are likely to face higher tariffs than India, which also has a relatively low share of the US import markets for clothing compared to Bangladesh, Cambodia and Indonesia, all of which are in the US’s government’s crosshairs.
India’s third-largest export to the US – pharmaceutical goods (worth $8.7bn in 2024) – has been exempted for now, though President Trump has indicated these would be tariffed separately at up to 200% with a grace period of 12 to 18 months for all trading partners.
In a quest to diversify its export base, the Indian administration is showcasing a renewed zeal to ink free trade agreements with other countries and regions. Amid heightened global trade policy uncertainty, having a pipeline of such bilateral trade agreements is a prudent policy choice according to Barclays.
“The US is India’s largest export destination by a wide margin – exports to the second-largest destination, the UAE, are less than half of those to the US,” says Ghare. “To reduce this lopsided dependency, India is also currently pursuing trade agreements with the EU and Oman, concluded the first round of trade talks with Chile and New Zealand and is reviewing its trade pact with ASEAN12.”
