India, US reach framework for interim trade pact; opens $30 trillion market for Indian exporters

The interim pact will open a $30 trillion market for Indian exporters, especially MSMEs, farmers and fishermen as the US duties on Indian goods will come down to 18% from 50% earlier.

New Delhi/Washington: India and the United States on Saturday announced they have reached a framework for an interim trade agreement under which both sides will reduce import duties on a number of goods to boost two-way trade.

US President Donald Trump has removed the 25 per cent tariffs, or additional import duty, it imposed on India in August last year for purchasing Russian oil, citing that the country has undertaken "significant steps" and New Delhi has committed to stop directly or indirectly importing oil from Moscow.

The interim pact will open a $30 trillion market for Indian exporters, especially MSMEs, farmers and fishermen as the US duties on Indian goods will come down to 18 per cent from 50 per cent earlier.

According to a joint statement, the two countries will "promptly" implement this framework and work towards finalising the interim agreement with a view to concluding a mutually beneficial Bilateral Trade Agreement (BTA).

As per the statement, India will eliminate or reduce tariffs on all US industrial goods and a wide range of American food and agricultural products, including dried distillers' grains, red sorghum for animal feed, tree nuts, fresh and processed fruit, soybean oil, wine and spirits, and additional products.

"The US and India are pleased to announce that they have reached a framework for an Interim Agreement regarding reciprocal and mutually beneficial trade," the statement said.

It added that the framework reaffirms the countries' commitment to the broader US-India Bilateral Trade Agreement negotiations launched by President Donald J Trump and Prime Minister Narendra Modi on February 13, 2025, which will include additional market access commitments and support more resilient supply chains.

According to the key terms of the agreement, the US will reduce the import duty on Indian goods to 18 per cent.

In August last year, the US imposed 25 per cent reciprocal tariffs and an additional 25 per cent levy on India for its purchase of Russian oil.

Indian exporters were hit hard by the 50 per cent tariffs, as America is their largest export destination.

The reduction in tariffs will help boost exports of India's labour-intensive sectors such as textile and apparel, leather and footwear, plastic and rubber, organic chemicals, home decor, artisanal products and certain machinery.

Subject to the successful conclusion of the interim agreement, tariffs will go down to zero on a wide range of goods, including generic pharmaceuticals, gems and diamonds, and aircraft parts, thereby further enhancing India's export competitiveness and the Make in India campaign.

The framework will also remove tariffs on certain aircraft and aircraft parts of India.

"Similarly, consistent with the US national security requirements, India will receive a preferential tariff rate quota for automotive parts subject to the tariff imposed to eliminate threats to national security," the statement said.

Commenting on the development, Commerce and Industry Minister Piyush Goyal said the trade pact will open a $30 trillion market for Indian exporters, especially MSMEs, farmers and fishermen.

The two sides have agreed that they will address non-tariff barriers that affect bilateral trade, which stood at over $191 billion.

The statement said that India has agreed to address long-standing barriers to the trade in US medical devices.

Besides, New Delhi has agreed to address long-standing barriers to the trade in US medical devices, eliminate restrictive import licensing procedures that delay market access for, or impose quantitative restrictions on American Information and Communication Technology goods.

"Recognising the importance of working together to resolve long-standing concerns, India also agrees to address long-standing non-tariff barriers to the trade in US food and agricultural products," the statement said.

It further said that India intends to purchase $500 billion of US energy products, aircraft and aircraft parts, precious metals, technology products and coking coal over the next five years.

India and the US will also significantly increase trade in technology products, including Graphics Processing Units and other goods used in data centres, and expand joint technology cooperation.

For the purposes of enhancing ease of compliance with applicable technical regulations, the two countries have planned to discuss their respective standards and conformity assessment procedures for mutually agreed sectors.

"In the event of any changes to the agreed upon tariffs of either country, the United States and India agree that the other country may modify its commitments," it said, adding that both will work towards further expanding market access opportunities through negotiations under the Bilateral Trade Agreement (BTA).

"The United States affirms that it intends to take into consideration, during the negotiations of the BTA, India's request that the US continue to work to lower tariffs on Indian goods," it said.

Meanwhile, through an executive order, the White House said that India has committed to stop directly or indirectly importing Russian oil, following which the additional 25 per cent tariffs imposed by America on Indian goods will be removed from February 7.

According to the order, India has also committed to a framework with the US to expand defence cooperation over the next 10 years.

"Effective with respect to goods entered for consumption, or withdrawn from the warehouse for consumption, on or after 12.01 am eastern standard time on February 7, 2026, products of India imported into the United States shall no longer be subject to the additional ad valorem rate of duty of 25 per cent imposed pursuant to Executive Order 14329," it said.

The framework of the interim pact will be converted into a legal agreement, which is expected to be signed by mid-March. Duty concessions will kick in after signing of that agreement.

During 2021-25, the US was India's largest trading partner in goods. The US accounts for about 18 per cent of India's total exports, 6.22 per cent in imports, and 10.73 per cent in bilateral trade. In 2024-25, the bilateral trade touched $186 billion ($86.5 billion exports and $45.3 billion imports).

With America, India had a trade surplus -- or the difference between imports and exports -- of $41 billion in 2024-25. It was $35.32 billion in 2023-24 and $27.7 billion in 2022-23.