PM Narendra Modi with US President Donald Trump.
Credit: PTI Photo
The fact that Prime Minister Narendra Modi will not be attending the ASEAN summit in Kuala Lumpur, Malaysia, suggests that the India-United States trade deal, which almost seemed in the offing, is still a distant dream.
Although it is being rationalised as a ‘scheduling issue’, perhaps Modi wishes to avoid a meeting with US President Donald Trump, who is attending the summit. The consequences of a meeting could have been unpredictable given Trump’s proclivity to broadcast half-truths on Truth Social.
Unless an India-US trade deal were to be announced on the sidelines of the ASEAN summit, Modi’s physical presence there made no sense, and could have been counter-productive.
Up to the Diwali phone call by Trump to Modi, the prospect of a trade deal reducing tariffs on India to 15% from the punitive level of 50% seemed imminent. Apparently, talks were on for making gradual concessions if India reduced the import of Russian oil, and opened the Indian agricultural market for the export of non-GMO soymeal for food-grade uses, as well as non-GMO corn from the US.
This was a major change, apparently from the earlier proposal of negotiating a gradual reduction of US tariffs on India to 15% by the year-end. A one-shot reduction to 15% would have been both dramatic and may have protected the negotiations from Trump’s mercurial and unpredictable mood changes.
The Diwali phone call changed all this as Trump went off on a tangent. Instead of speaking about tariff concessions, he is believed to have repeated his claim of stopping eight wars worldwide, including the one between India and Pakistan, and railed on about India’s continuing import of Russian oil.
Two days after Diwali, Trump also announced new sanctions against Russian State-owned oil giants Rosneft and Lukoil. Simultaneously, Trump also announced that India will gradually reduce Russian oil imports and may cut them up to 40% by the year-end.
Trump’s statement would force Indian refiners to further constrict Russian oil imports or face secondary sanctions. Indian public sector refiners, like IOC, BPL, and HPCL, have already started planning compliance moves by reviewing contracts to ensure that they do not import oil directly from Rosneft and Lukoil. The US Treasury Department has given a deadline of November 1 to global companies to wind down imports from these sanctioned entities.
The price difference between Russian and non-Russian oil has come down from $13 per barrel in 2022-2023 to just $2.30 in the financial year 2024-2025. The difference has widened again, with the difference reportedly becoming $4.7 per barrel in 2025. However, the narrowing gap suggests that India’s savings from the purchase of Russian oil have also decreased over time.
Trump’s pressure tactics may be a blessing in disguise for Modi. He will be seen as being forced to reduce Russian oil imports by US sanctions and high-handedness. It would strain the carefully balanced India-Russia strategic partnership less than a voluntary reduction on Modi’s part.
Russian companies like Rosneft and Lukoil may reassess their stakes in Indian ventures like Nayara, if private Indian refiners also scale back imports. Russia may question India’s overblown claims to ‘strategic autonomy’, but avoid punitive moves against India in this scenario.
Whether it will also slow-roll defence co-operation and the proposed sale of additional S-400 mobile surface-to-air missile systems to India, remains to be seen. In all likelihood, Russia will respond with an expression of strategic disappointment, economic recalibration, and diplomatic signalling, avoiding any overt action which suggests retaliation.
Modi is also under domestic pressure to seal a trade pact with the US.
Key ally and chief minister of Andhra Pradesh, N Chandrababu Naidu has been mounting pressure to protect the state’s aquaculture industry as his state’s shrimp industry has suffered a loss of Rs 25,000 crore already because of US punitive tariffs. Nearly 50% of the orders have been cancelled, severely impacting the livelihood of those dependent on shrimp farming.
Naidu has written to key Union ministers — including the finance minister, commerce minister, and fisheries minister — urging intervention to save the state’s aquaculture sector, citing the contribution of the sector to the state’s Gross State Domestic Product and its vulnerability to external shocks. Naidu’s concerns have added extra urgency to the India-US trade negotiations even as the government is exploring new markets from Andhra Pradesh’s shrimps globally.
There may also be pressure from other export-heavy states — Tamil Nadu in textiles and garments, Gujarat in pharma, Punjab in Basmati rice, and several states engaged in export of furnishings and furniture — both artisanal and mass-market products.
The Modi government, perhaps, wished to conclude the trade pact with the US before the Bihar Assembly polls. After Diwali, during the Chhat festival (October 25 to 28), a mass migration of workers from other states to Bihar is expected. The returning workers are expected to be in their home districts for voting. Some of the migrant workers from Bihar are employed in textile, diamond, and seafood processing industries in Tamil Nadu and Gujarat, directly impacted by US tariffs and trade uncertainty. They will bring back stories of factory layoffs and slowdowns.
There is also reverse migration of Bihari workers who have lost their jobs. Because of the US tariffs, the Tirupur garment industry has faced massive job losses, and thousands of migrants are returning to their home state. Although disaggregated data is not available, nearly one lakh workers in the diamond industry of Surat have lost their jobs, including workers from Bihar who would have returned home. These developments are adding to local unemployment, voter anxiety, and creating some amount of electoral vulnerability for the BJP.
However, hopes that a quick trade deal before the Bihar elections would restore export demand, reignite industrial activity in the host states, and signal economic recovery to the Bihar voters have now been belied.
Facing public embarrassment at the ASEAN summit under these circumstances was best avoided on the eve of the Bihar polls. Hence, Modi’s decision to announce on social media that he would address the summit ‘virtually’ as if this was entirely by choice.
Under the pincer movement of Trump and pressures from the states, the question not only is how much Modi will capitulate, but also how soon.
Bharat Bhushan is a New Delhi-based journalist.
(Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH).