India-United States Trade Deal

The India-United States (US) trade deal, which aims for an interim agreement, faces criticism from various sectors in India. The Congress party has labeled it a surrender, and a farmers' organization has called for protests, highlighting concerns about the deal being more favorable to the US.

US Trade Policy Under Trump

• Donald Trump's administration prioritizes resetting America’s economic relationships worldwide, often favoring the US in trade deals.
• Historically, post-World War II, the US favored economic partnerships that also benefited its trade partners to promote global peace and counter communism.
• Trump’s strategy involves leveraging the US’s economic and military power to restructure trade agreements.

Impact of Trade Deals

• The US-EU trade deal serves as a prime example of US dominance in trade negotiations, with the EU facing significant tariffs and committing to substantial US imports and investments.
• Similar one-sided agreements have been signed between the US and other allies like the UK, Japan, and South Korea.

India's Economic Context

• Despite a 50% tariff on Indian exports, India's total exports have risen by 4.4% year-on-year, with a 9.8% increase in exports to the US between April and December 2025.
• India’s capital inflows are declining. The current account deficit stands at 1.3% of GDP, comparable to countries like Canada and Australia.
• Gross foreign direct investment (FDI) fell by 2% in 2024, and net FDI reached only $5.6 billion from April to November 2025.
• Foreign portfolio inflows (FPI) witnessed a negative trend, with a decline of $3.9 billion from April to December 2026.

Strategic Importance of the Trade Deal

• The absence of a trade deal might continue to hamper capital flows and potentially affect service exports, defense collaboration, technology transfers, and the broader strategic partnership with the US.
• The deal is expected to shift the US’s stance towards India from hostile to neutral, benefiting the Indian economy.
• Compromises in the deal include reducing oil imports from Russia and increasing US imports to $100 billion annually for the next five years.

The trade deal is not just about economic exchanges but involves strategic implications, shifting relations from potential hostility to neutrality, which is crucial for sustaining India’s economic performance in the long term.