President Donald Trump is urging Prime Minister Narendra Modi to take action that India has historically resisted: reducing the substantial tariff barriers that have existed around the world’s largest developing economy since its independence.
India’s commerce minister, Piyush Goyal, visited Washington last week to engage in talks regarding a bilateral trade agreement aimed at addressing Trump’s recent threat of reciprocal tariffs.
While Indian officials claim that talks are advancing, Trump stated on Friday that New Delhi has agreed to significantly lower its tariffs. US Commerce Secretary Howard Lutnick emphasized that India needs to increase its purchases of defense products and reduce tariffs as part of a “grand” bilateral deal.
This ultimatum from the US has prompted analysts to suggest a broader trade realignment by New Delhi, which has traditionally taken a tough stance during negotiations. In February, India resumed its long-stalled free trade agreement talks with the UK and committed to finalizing an FTA with the EU within the year.
“India’s political leadership recognizes the disruption caused by Trump and the potential to reform our relationships with the US, EU, and UK,” remarked Raja Mohan, a visiting professor at the Institute of South Asian Studies in Singapore. “With the right political will, it’s possible that India will soon finalize these three trade agreements that will redefine our ties with the West.”
Modi has already expressed intentions to purchase more US oil and gas, despite having access to nearer and cheaper suppliers in the Middle East and Russia. The two nations also committed to finalizing the first phase of a “mutually beneficial, multisector” bilateral trade agreement by this autumn.
However, having staunchly protected its industries since 1947, India holds some of the highest average tariffs globally, and reducing them will be a politically sensitive issue, particularly in the agricultural sector, which employs nearly half of the Indian workforce.
There is a possibility that negotiations could falter, potentially leading to retaliatory tariffs as early as April, according to Indian analysts. Following his meeting with Modi on February 13, Trump remarked to Fox News host Sean Hannity, “Whatever you charge, I’m charging.”
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Since 2014, Modi’s government has signed free trade agreements (FTAs) with Australia, the United Arab Emirates, and the European Free Trade Association. However, it has also introduced tariffs since 2020 to protect emerging industries such as solar technology and electronics, supporting Modi’s vision of Atmanirbhar Bharat (“self-reliant India”), reminiscent of past protectionist policies.
During FTA negotiations with EFTA and the UK, analysts noted that the Modi government adopted a hardline negotiating stance, insisting that its trading partners reduce tariffs more than India does, arguing that it is growing faster and offers rich economies a larger market opportunity in the future.
In contrast, India’s trade position with Washington has been more accommodating, possibly reflecting the US’s role as a crucial defense and economic ally.
The US stands as India’s largest trading partner, reflecting mutual trade worth $129 billion in 2024, although EU countries collectively account for more. The trade deficit with the US reached over $45 billion last year — significantly less than the “almost $100 billion” deficit Trump cited at the White House, yet the 10th largest with America’s trade partners.
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Indian tariffs on US goods are typically higher than those imposed by the US, often significantly so. The differential for industrial products is about 3.3 percent, while for agricultural goods, it stands at 32.4 percent, according to the Global Trade Research Initiative (GTRI), based in New Delhi.
Prior to and following Modi’s visit to Washington, India announced a round of largely symbolic tariff reductions on products such as bourbon whiskey, luxury vehicles, and large motorcycles, the latter addressing a long-standing complaint from Trump regarding tariffs on Harley-Davidson bikes.
The two nations also agreed to enhance US exports of industrial goods to India and increase Indian-manufactured products to the US, along with pledging to collaborate on expanding trade in agricultural goods, lowering tariffs and non-tariff barriers, and strengthening supply chain integration.
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Modi faces the most politically sensitive challenges in the agricultural sector.
India’s safeguarded dairy sector, which enjoys import tariffs ranging from 30 to 60 percent, was a significant factor in the country’s decision to withdraw from talks to form the Regional Comprehensive Economic Partnership just before its ratification by 15 Asia-Pacific countries, including China, in 2020.
The major dairy firm Amul raised alarms to Modi’s administration, indicating that the RCEP would adversely affect India’s approximately 100 million dairy farmers, many of whom are smallholders. The influential farming lobby also compelled New Delhi to retract on three proposed farming bills aimed at revamping agriculture due to mass protests in 2020-21.
“Certain sectors are particularly sensitive to tariff reductions, especially agriculture,” commented Biswajit Dhar, a former negotiator for India with the World Trade Organization and distinguished professor at the Council for Social Development.
“The US-India joint statement touches on agricultural products, but the responsibility lies with India to implement cuts,” Dhar noted.
Lutnick asserted that India must “open up” its agricultural markets.
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While India’s tariffs on agricultural goods are elevated, the US allocates significantly higher subsidies, according to Dhar.
Moreover, Indian analysts suspect that Washington may pressure New Delhi to allow US companies greater access to government procurement and eliminate data flow restrictions — demands that are sensitive for a developing nation prioritizing its economic sovereignty.
The path forward in trade discussions appears challenging.
“India should aim for a tariff arrangement where almost all industrial tariff lines are zero for zero,” suggested Ajay Shrivastava, founder of GTRI. “However, any conversation surrounding agriculture needs to be approached delicately as it directly impacts livelihoods for many.”
