India–US trade deal cuts tariffs, boosts export outlook and market sentiment

Summary

The initial trade deal between India and the United States lowers American tariffs on Indian goods and opens the door to higher Indian purchases of U.S. energy, defence and technology products. Export-oriented Indian sectors stand to gain, and markets have reacted positively. However, details on which tariffs will be fully removed — and how quickly India reduces Russian oil imports — will shape the agreement’s long-term impact.

NEW DELHI/WASHINGTON — U.S. President Donald Trump on Monday announced a trade agreement with India that sharply reduces U.S. tariffs on Indian goods, a move expected to lift exports and strengthen investor sentiment, according to Reuters.

Under the arrangement, U.S. tariffs on Indian products will fall to 18% from 50%, Trump said. In return, India will curb purchases of Russian oil, lower some trade barriers, and increase imports of American energy, defence, technology and agricultural products. Officials described the deal as the first phase of a broader trade pact to be negotiated over the coming months.

Higher Indian purchases from the U.S.

India is expected to step up imports of:

• U.S. crude oil and coal
• Defence equipment and aircraft
• Electronics and telecom gear
• Pharmaceuticals and farm products

Some access to India’s agricultural market is also included, though officials have not yet clarified which products will see full tariff elimination versus phased cuts.

Washington has long sought wider farm access. The U.S. ran a $1.3 billion agricultural trade deficit with India in 2024, highlighting pressure from American producers.

Export gains for India

Indian exporters said the sharp tariff reduction could significantly benefit:

• Textiles and apparel
• Pharmaceuticals and chemicals
• Footwear and jewellery
• Seafood — particularly shrimp

Lower duties would help Indian suppliers compete more effectively with exporters from Vietnam and Bangladesh in the U.S. market.

Russian oil factor

A key element of the agreement is India’s plan to scale back purchases of discounted Russian crude that surged after Western sanctions on Moscow.

Refiners have already diversified toward the U.S., Middle East, Africa and South America, though industry sources caution that existing contracts will take time to unwind and no formal halt directive has yet been issued.

Trade flows and remaining tariffs

Despite earlier tariff hikes, India’s exports to the U.S. remained strong:

• Exports (Jan–Nov): $85.5 billion (+15.9% year-on-year)
• Imports from U.S.: $46.1 billion

Total two-way trade in goods and services reached $212.3 billion in 2024, with the U.S. running a $45.8 billion goods deficit with India.

However, analysts noted that Section 232 tariffs on steel, aluminium, copper, autos and auto parts are likely to remain in place, meaning some trade friction will persist.

Market reaction

Financial markets welcomed the deal:

• Indian rupee strengthened over 1%
• Nifty 50 rose about 3% (after jumping as much as 5% intraday)
• 10-year bond yield fell roughly 5 basis points

Economists said improved export prospects and capital inflows could support currency stability, though energy transition risks remain.

Why this matters

• Boosts India’s export competitiveness in the world’s largest consumer market
• Strengthens strategic economic ties between Washington and New Delhi
• Reduces trade uncertainty that has weighed on manufacturers and investors
• Shifts India’s energy sourcing away from Russia toward Western suppliers
• Supports market confidence, currency stability and foreign investment

In effect, the deal signals a deeper economic alignment between India and the U.S., while reshaping supply chains, energy flows and global trade dynamics.

FAQs

Q1. What is the key feature of the India–U.S. trade deal?

The U.S. will cut tariffs on Indian goods to 18% from 50%, while India expands imports of American products and reduces some trade barriers.

Q2. Which Indian sectors benefit most?

Textiles, pharmaceuticals, chemicals, jewellery, footwear and seafood exporters are expected to see the biggest gains.

Q3. How does Russian oil factor into the agreement?

India has agreed to scale back Russian crude purchases, though refiners may need time to unwind contracts.

Q4. Will all tariffs be removed?

No. Some duties may fall to zero over time, but U.S. Section 232 tariffs on metals and autos are expected to remain.

Q5. How did markets respond?

The rupee strengthened, equities rallied and bond yields fell, reflecting improved investor sentiment.

Q6. Is this the final trade pact?

No. This is described as the first phase of a broader agreement still under negotiation.