India and the United States have unveiled a major trade breakthrough that could significantly reshape bilateral commerce, ease tariff frictions, and unlock new export momentum for Indian industry. At the heart of the understanding lies the US decision to rationalise reciprocal tariffs on a wide range of Indian goods—from labour-intensive sectors such as textiles, leather, footwear, and carpets to manufacturing segments like plastics, chemicals, machinery, and artisanal products. The tariff reduction from 25% to 18%, alongside the proposed removal of duties on select categories subject to the wider agreement’s conclusion, signals a tangible shift toward trade normalisation after nearly a year of strained negotiations.
Beyond tariffs, the pact reflects deeper economic alignment—spanning technology trade, energy cooperation, aviation purchases, and supply chain integration. For India, the deal not only improves market access in its largest export destination but also strengthens its positioning as a competitive alternative within evolving global manufacturing and sourcing networks.
India and the United States have unveiled a major trade breakthrough, with the US agreeing to rationalise reciprocal tariffs on specific Indian goods from 25% to 18% – textile and apparel, leather and footwear, plastic and rubber, organic chemicals, home décor, artisanal products, and certain machinery. Subject to the conclusion of the wider agreement, the US will remove reciprocal tariff on a wide range of goods.
The agreement will see India commit to buying US$ 500 billion worth of goods from the US over the next five years, including energy products, aircraft and aircraft parts, precious metals, technology products, and coking coal. The two countries will also ramp up trade in technology products, including Graphics Processing Units (GPUs) and other goods used in data centers, and increase joint technology cooperation.
India will also remove or bring down tariffs on all US industrial goods and a wide range of US food and agricultural products, including dried distillers’ grains (DDGs), red sorghum for animal feed, tree nuts, fresh and processed fruit, soybean oil, wine and spirits, etc.
In his post on social media platform Truth Social, the U.S. President Donald Trump, announced the trade agreement with India on Monday, February 2, 2026. He said tariffs on Indian goods would be reduced to 18%, replacing the earlier 25% reciprocal duties and an additional 25% imposed over New Delhi’s purchases of Russian oil.
The announcement brought an end to nearly 12 months of strained negotiations that had led to a sharp deterioration in bilateral ties.
President Trump’s announcement of the pact is expected to give a lift to Indian exports and strengthen New Delhi’s position as a key alternative to China in global supply chains. Experts noted that once implemented, the deal would act as a significant booster for India as it competes with China in manufacturing and commercial spheres.
PM Modi stated, “Delighted that Made in India products will now have a reduced tariff of 18 per cent. Big thanks to President Trump on behalf of the 1.4 billion people of India for this wonderful announcement.”
Over the past decade, India–US trade has shown steady growth despite periodic tariff tensions, with Indian exports to the US increasing from US$ 53 billion in FY20 to a high of US$ 86.5 billion in FY25. India has consistently recorded a trade surplus, peaking at US$ 40.9 billion in FY25. In fact, even if you look at January-November, 2025, India’s exports to the US were at US$ 85 billion, growing by 15.9% YoY, despite the additional tariffs imposed by the US.
During this period, some categories that have seen an impact include Diamonds, w/n worked… (HS 710239, -42.4% YoY); diamonds… (HS 710491, -33.4%); articles of jewellery… (HS 711319, -17% YoY); photovoltaic cells (HS 854143, -15% YoY); Other bedspreads (HS 630419, -14.4% YoY); turbojets (HS 841112, -12.03%) and Light oil & prepns (HS 271012, -11.55%).
Key export categories to the US include electrical machinery, pharmaceuticals, engineering goods, jewellery and mineral fuels. Imports are largely driven by mineral fuels, precious metals, high-end machinery, medical instruments and a range of industrial chemicals.
India’s labour-intensive sectors were among the worst affected by the US tariffs, which at 50% were the highest imposed on any competing country. The hardest-hit industries included textiles and apparel, leather and footwear, marine products, chemicals, plastics and rubber, home décor and carpets, machinery, as well as select agricultural and processed food products.
Indian exporters, until now, had found it difficult to compete in their largest market with lower-cost, labour-intensive products from countries such as Bangladesh, Cambodia, Vietnam, Indonesia, China, Malaysia and Thailand, as Indian goods faced duties of up to 50%.
With the new deal, Indian exporters are expected to enjoy a duty advantage of around 1–2 percentage points. Rival exporters in the US market currently face relatively higher import duties, with Vietnam at 20%, Malaysia at 19%, Bangladesh at 20%, Cambodia at 19% and Thailand at 19%. China faces tariffs of 47%, while Pakistan and Bangladesh face duties of 20%.
Under the recent India–US trade agreement, Indian dairy and other “sensitive” agricultural products are kept outside its scope, while more than US$40 billion worth of Indian goods receive zero-duty access and customs duties are cut on labour-intensive exports.
According to US Trade Representative Jamieson Greer, India will lower tariffs on US exports, bringing duties on industrial goods down from 13.5% to zero.
Spread over five years, the US$500 billion purchase commitment, according to the sources, focuses on goods that India already imports in large volumes. These include aircraft and parts worth more than US$ 100 billion to meet the needs of a fast-growing economy, as well as crude oil and liquefied natural gas (LNG) valued at billions of dollars annually.
However, CIM Shri Piyush Goyal has asserted that the figure is not a binding obligation, but a broad estimate based on India’s expanding needs and areas where US is globally competitive. In areas like coking coal, aircrafts, crude oil, LNG and LPG, demand is bound to increase. Data shows that in November 2025 alone, India’s crude oil imports from the US jumped 47.6% year on year to over US$1.9 billion, while volumes rose 31.4% to 5,385,271 tonnes.
Similarly, with emerging sectors like AI, data centres and quantum computing, India’s demand for ICT products could go as high as US$ 2 trillion over five years. Technology-driven areas are vital for India’s growth and its ambition to become a developed economy, and are expected to provide a substantial boost to the Indian economy.
Zero-duty access and tariff adjustments under PTAAP
Under the trade deal, India could gain zero-duty access to the US market for goods worth around US$10 billion, a benefit that the US extends to most of its free trade agreement partners. This is provided for under the US Annexure III, known as Potential Tariff Adjustments for Aligned Partners (PTAAP).
US government websites indicate that around 2,000 products qualify for reduced or zero duties under the PTAAP, spanning sectors including natural resources, coffee and tea, fruits such as bananas and oranges, tomatoes, and fruit juices. This would be in addition to about US$4 billion worth of Indian goods—such as certain agricultural products, paper and minerals—that are already exempt. Notably, the US does not impose tariffs on these items for any country. (Pharmaceuticals and mobile phones, which are already exempt under the PTAAP, will continue to remain duty-free even after the deal.)
However, goods worth about US$12–13 billion—including steel, aluminium, automobiles and auto components, and copper—are subject to US safeguard duties. These measures fall under the World Trade Organization framework and are applied uniformly to all countries.
At the same time, highly sensitive US products are likely to continue receiving duty protection in India, while the least sensitive American goods are expected to gain immediate zero-duty access.
The list of sensitive products covers dairy, cereals, maize, meat, poultry, rice, wheat, GM foods, soybeans and ethanol.
Items classified as moderately sensitive—such as almonds, pistachios, cherries and hazelnuts—are likely to be placed under tariff rate quotas, while duties on products like lettuce and some oils will be phased out over three to ten years.
Notably, India has managed to protect the interests of sensitive sectors—especially agriculture and dairy—under the trade agreement with the United States, while securing substantial gains for Indian exporters. (India has consistently excluded agriculture and dairy from the scope of its trade agreements, including those signed with New Zealand, the UK and the European Union.)
The deal will also benefit MSMEs, skilled workers and industries, while improving access to advanced technologies.
Commerce and Industry Minister Piyush Goyal said that the trade deal is aligned with India’s vision of Make in India, Design in India and Innovate in India for the world. Further, it will help Indian companies integrate into global value chains while expanding their market access in the US. The trade agreement marks a significant step towards Viksit Bharat 2047 and Atmanirbhar Bharat.
Concluding the agreement, according to analysts, marks a win for both the US and India. The deal is expected to fast-track bilateral trade and sends a message that this is just the start, with both countries realigning on critical minerals, artificial intelligence and the Quad agenda, and reaffirming that while trade may be transactional, the partnership will extend much further.
As India advances towards becoming a developed nation, it will need to scale up its capabilities in areas such as energy, aviation, data centres and nuclear power. With the US being a global leader in these areas, it is logical for India to explore greater trade opportunities, which would not only expand imports but also boost the country’s exports.
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