India-US Trade Agreement Framework

The recent India-United States (US) joint statement has established a framework for an interim trade agreement, which could signify a notable improvement in bilateral relations. Although the timeline for its implementation is uncertain, it promises potential relief for exporters suffering from the cumulative 50 per cent tariffs imposed by US President.

Key Elements of the Trade Agreement

• The 25 per cent surcharge on India for purchasing Russian oil, although not specifically mentioned, is expected to be removed.
• The remaining tariffs will be reduced from 25 per cent to 18 per cent, aligning with rates in other Asian countries.
• India has negotiated protections for certain agricultural goods, allowing some US products like fruit, soybean oil, and nuts into Indian markets, while safeguarding domestic products such as rice, wheat, poultry, and dairy.
• Reductions in tariffs on industrial goods are anticipated, but details regarding zero-rated items and the timeline are pending.

Commitments and Investments

• India has committed to purchasing $500 billion worth of goods from the US.
• This includes significant aircraft purchases from Boeing and potential increases in fossil fuel imports.
• The US is considered a viable alternative for diversifying imports of coking coal from Australia.
• Potential investments in data centers, aided by tax incentives, could lead to substantial imports of graphics-processing units (GPUs).

Implications for India

The past weeks represent a pivotal shift for India, which has been cautious about new trade agreements since 2014 due to past dissatisfaction with free-trade agreements. For the new agreement to be effective, India must accelerate internal reforms, especially in regulatory alignments and factor-market reforms. Additionally, small and medium enterprises need support to navigate new export opportunities and regulations. Reducing logistics costs and deepening power reforms are crucial for integrating into modern supply chains.

Future Trade Considerations

India should reconsider joining trade pacts such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership to enhance its export growth potential.