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Preetha Renganarayanan
8 February 2026 |
What happened?
On 06 February, India and the US issued a joint statement announcing a framework for an Interim Agreement and their work towards a more comprehensive Bilateral Trade Agreement (BTA).
On the same day, President Trump issued an executive order lifting the additional 25 per cent tariff on Indian goods after New Delhi committed to halting direct and indirect imports of Russian oil.
What is the background?
First, a brief note on India–US trade relations. The bilateral trade relations have expanded over the past decade, despite recurring disputes over tariffs, market access, and regulatory standards. In 2024, India was the US’s 10th-largest goods trade partner, while the US was India’s largest. US goods exports to India stood at USD 41.5 billion and were concentrated in energy, manufacturing, and aerospace products. US imports from India were led by pharmaceuticals, manufactured goods, IT equipment, apparel, and textile furnishings. The US services exports to India were driven largely by travel, while imports were concentrated in business and IT services. Overall, bilateral goods and services trade totalled USD 212.3 billion in 2024, an increase of 8.3 per cent from 2023. Convergence, especially on supply chains and technology, increased, but the absence of a comprehensive trade agreement limited the scope of economic cooperation.
Second, Trump tariffs and the recent tensions. Following a 90-day pause on Trump’s “Liberation Day” tariffs, most Indian exports faced cumulative duties of 50 per cent, comprising a 25 per cent punitive tariff on Russian oil imports and a 25 per cent reciprocal tariff. These levies were the highest applied to any US trading partner and were reportedly among the lowest points in US–India relations in nearly 25 years. Despite announcements by Trump and Modi in February 2025 to negotiate, negotiations stalled as tariff tensions increased, with Trump repeatedly remarking on mediating the India–Pakistan conflict. In this backdrop, India pivoted to improving its engagement with China and struck a landmark trade deal with the European Union.
Third, negotiations and the interim trade framework. The framework announced on 6 February 2026 forms a key step towards the broader BTA negotiations launched in 2025. These talks have addressed long-standing and sensitive issues, including agriculture, pharmaceuticals, digital trade, non-tariff barriers, and industrial tariffs. Under the framework, the US reduced tariffs on most Indian exports to 18 per cent, while eliminating the additional 25 per cent duty tied to India's Russian oil purchases. In exchange, India agreed to eliminate or substantially reduce tariffs on all US industrial goods and to grant expanded market access for select US agricultural and food products, while protecting sensitive sectors such as agriculture and dairy. India is also committed to purchasing USD 500 billion worth of US goods over five years, across energy, aviation, precious metals, and advanced technology. Binding timelines were set for resolving non-tariff barriers, even as full BTA discussions continue in parallel. Though not a complete free trade agreement, this represents the most significant progress in India–US trade relations in over a decade.
What does it mean?
First, sectoral and bilateral trade implications. The tariff relief is expected to benefit Indian exporters in textiles, apparel, leather, footwear, chemicals, home décor, artisanal products, and selected machinery, improving competitiveness broadly in line with regional peers. Reduced duties on aircraft, aircraft parts, and quota access for auto components will help India’s integration into the US aerospace and automotive supply chains. For the US, India's tariff cuts on industrial goods, plus greater access for agricultural products, open new opportunities. Non-tariff barriers in agriculture, medical devices, and communications equipment are to be addressed within six months by accepting US or international standards. However, certain points remain in question, such as the outcomes for pharmaceuticals, which depend on US investigations. While the government highlights safeguards for vulnerable sectors, critics argue the framework was largely concluded on US terms, questioning the overall balance of concessions.
Second, implications for India–US relations. The interim framework reflects a stabilisation of bilateral ties after a period of acute tension over tariffs and disagreements on energy and market access. The rollback of the additional 25 per cent tariff has softened immediate friction; however, Washington retains an upper hand by monitoring India’s future energy sourcing. On the other hand, India withstanding broad agricultural opening and the protection of sensitive sectors highlight New Delhi’s emphasis on maintaining autonomy over sensitive areas. The framework showcases willingness on both sides and moves towards cooperation in areas of common interests such as supply chains, technology, and China.
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