Key Takeaways from Modi-Trump Discussions

Despite the buzz, Indian Prime Minister Narendra Modi’s inaugural trip to Washington during Donald Trump’s second term was a pragmatic, business-centric event, which is to be expected from a working visit devoid of the grandeur typical of state visits.

Trump revealed plans to boost US military exports to India starting in 2025, including F-35 jets, along with increased oil and gas sales aimed at reducing the trade deficit. The two nations agreed to begin negotiations for a trade agreement and to establish a new defense partnership.

Additionally, he confirmed that the US has approved the extradition of Tahawwur Rana, a Chicago businessman implicated in the 2008 Mumbai terror attacks.

“That’s a significant amount of accomplishments for an administration that’s just begun,” remarked Michael Kugelman from the Wilson Center’s South Asia Institute.

“Overall, both countries seem willing to maintain Biden-era collaborations, particularly in technology and defense, even if they rebrand many aspects under Trump.”

Nonetheless, substantial challenges lie ahead. Below are the key points of discussion:

Modi’s visit coincided with Trump’s order mandating that US trading allies face reciprocal tariffs – equivalent import duties to match those imposed by these nations on American goods. Trump instructed his advisers to outline expansive new tariffs for US trade allies, warning they could be enforced by April 1st.

Given that India maintains a trade surplus with the US, its leading trade partner, it proactively lowered average tariffs from 13% to 11% in its federal budget to anticipate Trump’s tariff initiatives.

The outcome is still uncertain regarding whether India has managed to sidestep tariff repercussions for the time being.

According to Ajay Srivastava, the founder of the Global Trade Research Institute (GTRI) in Delhi, he perceives “no issues regarding tariffs.”

He attributes this perspective to the fact that 75% of US exports to India face import taxes of less than 5%.

“Trump highlights extreme outlier tariffs, such as 150% on certain products, but that isn’t the norm. India has minimal motives to dread reciprocal tariffs,” Mr. Srivastava shared with the BBC.

Abhijit Das, former head of the Centre for WTO Studies at the Indian Institute of Foreign Trade, remains skeptical.

“The details will be crucial. Reciprocal tariffs will not only reflect India’s import taxes; various other factors will influence the situation,” he advised.

Trump’s strategy could extend beyond import duties, incorporating value-added taxes (VAT), non-tariff barriers, and trade restrictions. While India’s GST on imported products is consistent with WTO standards, Trump may still leverage it as justification for higher tariffs.

A government memo on reciprocal tariffs suggests this approach, noting the costs to American corporations from non-tariff barriers, subsidies, and onerous regulations abroad. It also references VAT and governmental procurement limitations as non-tariff barriers.

Mr. Das anticipates that the US will advocate for access to India’s government procurement market, which is currently under the protection of WTO regulations.

“This could impair India’s capacity to support domestic producers, posing a significant threat to the ‘Make in India’ initiative. Such developments are certainly not favorable for us,” he noted.

Mr. Das suggests India should challenge Trump’s reciprocal tariff narrative, particularly in the agricultural sector, where the US imposes stringent non-tariff barriers limiting Indian exports, such as strict maximum residue limits on chemicals.

He argues that since the US “substantially subsidizes” its agricultural sector, India should emphasize these subsidies to counter American assertions.

Experts posit that tariffs alone may not effectively bridge the trade imbalance between the two nations. Investments in defense and energy could contribute to mitigating this deficit.

The newly established $500 billion (£400 billion) trade objective endeavors to more than double the existing $190 billion trade figure between the countries by 2023.

Modi and Trump committed to negotiating the initial phase of a trade agreement by autumn 2025, centering the discussions on market access, tariff reductions, and supply chain integration for goods and services.

“The declaration to pursue a trade agreement provides India an opening to advocate for reduced tariffs from both sides. This would benefit not only the US-India relationship but also an Indian economy that has faced challenges in recent months,” suggested Mr. Kugelman.

However, the specifics of the trade agreement remain ambiguous.

“What form will this trade agreement take? Is it a comprehensive free trade pact or merely a retaliatory tariff framework?” questions Mr. Srivastava.

Mr. Das believes further details regarding the trade agreement are necessary.

“It might not necessarily lead to a free trade agreement – if that were the case, it would have been clearly stated. It could simply involve tariff reductions on selected products of mutual interest,” he elaborates.

Priyanka Kishore, principal economist at Asia Decoded, a consultancy firm in Singapore, notes that $500 billion presents a “difficult goal, but there are immediate opportunities available.”

“For example, the upcoming US sanctions on Russian shadow fleets could facilitate India’s pivot towards the US for oil. This transition should not be overly complicated,” she concluded.

Trump stated during the joint press conference that the US aims to become India’s primary supplier of oil and gas.

India’s defense transactions with the US have rose from nearly zero to $20 billion, establishing the US as its third-largest supplier of military equipment.

While Russia still constitutes India’s main source, its portion has contracted from 62% to 34% from 2017 to 2023 as India transitions towards acquiring from the US.

In a significant move to enhance defense relations, Trump announced the US would ramp up sales of military equipment to India “by several billion dollars starting this year,” ultimately paving the way for providing F-35 stealth fighters.

However, experts caution that this may be easier said than done.

“It sounds promising, but it might be a case of getting ahead of the curve,” Mr. Kugelman remarked.

Despite US arms sales to India on the rise, bureaucratic roadblocks and export regulations hinder the transfer of sensitive technologies. The new defense framework established at the summit might help to surmount these obstacles.

Additionally, India is not seriously considering the F-35 offer due to its high maintenance requirements, according to strategic affairs specialist Ajai Shukla.

Shukla observes that US weapon sales often come with complications, as private companies prioritize profit over long-standing partnerships.

Nonetheless, with delays and budget overruns affecting some of India’s deals with Russia, it appears that Delhi’s defense collaboration with the US is likely to intensify.

Modi held a meeting with Tesla CEO Elon Musk to discuss AI and emerging technologies, according to India’s foreign ministry.

It’s uncertain if their discussions addressed the delays in Musk’s plans for Starlink’s launch in India and Tesla’s entry into the market.

Musk has advocated for direct spectrum allocation, countering Indian billionaire Mukesh Ambani’s preference for auctions. His licensing situation is still being evaluated.

India is actively encouraging Tesla to establish a manufacturing plant, proposing to reduce EV import tariffs for automakers that commit to investing $500 million and initiating local production within three years. Tesla has yet to finalize its plans.

In an uncommon instance, Modi appeared alongside Trump at a press conference, answering two questions surrounding illegal immigration and bribery charges filed against the Adani Group by the US Department of Justice (DOJ).

Indian entrepreneur Gautam Adani, alleged to have close ties to Modi, was charged with fraud in the US last November related to an alleged $250 million bribery scheme.

Modi stated he hadn’t discussed the matter with Trump. In terms of immigration, he expressed India’s readiness to repatriate verified illegal Indian migrants.

This marked only Modi’s third direct press inquiry session during his nearly 11-year term as India’s prime minister. He has never conducted a solo press briefing. In 2019, he sat beside the then party president Amit Shah, who fielded the questions, and in 2023, he took just two questions alongside former President Joe Biden.