US-India Trade Deal: A Preliminary Analysis of Mutual Benefits and Key Sectors
The patience of the Narendra Modi government appears to have yielded positive results. A joint statement issued by the White House on February 6 provides some relief and indicates the likely direction of an upcoming trade agreement between the United States and India. While it remains an interim agreement, with no explicit mention of India halting crude oil purchases from Russia, the statement demonstrates a clear convergence of interests between the two nations. More details are expected when a final agreement is reached in March, but preliminary research suggests this deal could be mutually beneficial.
Key Gains for Indian Exporters
The most significant gain for India comes from a massive reduction in US import duties, which are set to drop from 50% to 18%. This move is poised to benefit India's labour-intensive sectors immensely, including textiles and apparel, leather goods, gems and jewellery, and agriculture. Without this deal, India faced a potential major loss in exports to the US by 2026.
To understand the ground-level impact, consider the reactions of exporters. Apparel exporters in Tirupur, diamond exporters in Surat, and shrimp exporters in Andhra Pradesh are breathing a sigh of relief and celebrating. This duty reduction allows Indian exporters to compete more effectively with rivals from Bangladesh or Vietnam, which face a 20% duty, and provides a significant advantage over China if US import duties on Chinese exports remain around 35%.
India's Commitments and Agricultural Implications
India has expressed its intent to purchase substantial energy products, aeroplanes, and high-tech equipment from the US, potentially totalling roughly $500 billion over the next five years. This provides clarity on India's import plans.
On the agricultural front, the joint statement specifies that India will eliminate or reduce tariffs on all US industrial goods and a wide range of US food and agricultural products. These include dried distillers' grains (DDGs), red sorghum for animal feed, tree nuts, fresh and processed fruit, soyabean oil, wine, and spirits. Notably, there is no explicit mention of corn or soyabean, which are genetically modified organisms (GMOs) and had raised concerns in India, despite India's own cotton seed being a GM product.
Soyabean oil, already imported from the US, is included, but the new area is DDGs—crushed grains used as poultry feed. If imported DDGs are cheaper, they could substitute Indian grains like corn and rice in ethanol production, potentially making India's poultry sector more competitive.
Duty Reductions on Specific Products
Tree nuts and berries have been a key interest for the US. Almonds, which constitute almost 90% of almonds sold in India from the US, currently attract a duty of Rs 42/kg, roughly 10% of import value. Walnuts, however, face a 120% duty, likely to be slashed to near almond levels. Similar reductions are expected for pistachios, pecans, cranberries, and blueberries, with import duties potentially falling to 10-15%.
Cotton imports, currently at a 5% duty, may see a reduction to zero. The story of cotton in India is instructive. Under Prime Minister Atal Bihari Vajpayee, India allowed its first GM crop, Bt cotton, in 2002, leading to a production surge from 13 million bales in 2002-03 to 39 million bales by 2012-13, making India the largest producer and second-largest exporter. However, policy changes around 2014-15 disrupted this progress, and by 2024-25, India became a net importer with production dropping to 29 million bales.
Lessons for India's Agricultural Future
The lesson is clear: India must either invest in its own agricultural research and development or acquire the best technologies from abroad. The Indian Council of Agricultural Research (ICAR) has a budget of about $1.1 billion for all crops, while Bayer, which holds advanced cotton seed technology, invested euros 2.6 billion in 2024. India should heed PM Vajpayee's advice that biotechnology is to Bharat what information technology is to India. Gene editing represents the future of agriculture, and India must invest in it to enhance competitiveness.
In summary, the US-India joint statement marks a step toward a fair and beneficial trade deal, with significant gains for Indian exporters and commitments from India that could boost bilateral trade. The final agreement in March will provide more clarity, but the interim progress is promising for both nations.
