India, US trade deal can't be implemented until we have 'competitive advantage': Piyush Goyal
Negotiations for a full India-US Bilateral Trade Agreement (BTA) are ongoing, with India's Commerce Ministry signalling that implementation requires both sides to agree on "competitive" tariff levels acceptable to each economy.
The framework for an interim trade arrangement was agreed in early 2026, under which the US applies a reciprocal tariff rate of 18% on originating goods from India — reduced from an earlier proposed rate of approximately 50% following negotiated adjustments.
India's export target of $1 trillion by FY2027 (Financial Year ending March 2027) remains a stated policy objective; trade with the US is a significant contributor to this target, as the US is India's largest export destination.
Key sticking points include India's tariff structure on US agricultural goods (averaging around 37%) and on certain automobiles (above 100%), which the US has flagged as barriers.
Beyond tariffs, the BTA negotiations cover non-tariff barriers, customs facilitation, intellectual property, services and investment, government procurement, and trade-distorting practices of state-owned enterprises.
Bilateral Trade Agreements and the WTO Framework
A Bilateral Trade Agreement (BTA) is a treaty between two countries that preferentially reduces or eliminates tariffs and other trade barriers on goods and services flowing between them. Under World Trade Organization (WTO) rules, such preferential agreements are permitted as an exception to the Most Favoured Nation (MFN) principle under GATT Article XXIV (for goods) and GATS Article V (for services), provided the agreement covers "substantially all trade" and is notified to the WTO.
Key Details
- MFN principle: WTO members must extend to all other members the most favourable tariff treatment they give to any single member (no discrimination between trading partners), unless a legitimate BTA/FTA exception applies
- India currently has Free Trade Agreements (FTAs) in force with ASEAN (2010), South Korea (CEPA, 2010), Japan (CEPA, 2011), the UAE (CEPA, 2022), and Australia (ECTA, 2022); a full FTA with the UK was under negotiation
- India does NOT have a comprehensive FTA with the US; the India-US trade relationship has historically operated under WTO's MFN framework with some bilateral engagement through the Trade Policy Forum (TPF)
- The US unilaterally withdrew India's Generalised System of Preferences (GSP) benefits in June 2019 — a further backdrop to ongoing tariff tensions
The BTA being negotiated would formalise preferential tariff reductions outside the WTO MFN framework; until it is completed, trade flows between the two countries operate at MFN rates or the interim reciprocal tariff arrangement, making "competitive" tariff alignment crucial before implementation.
India's Trade Architecture and Export Policy
India's trade policy is administered by the Ministry of Commerce and Industry through the Directorate General of Foreign Trade (DGFT). The annual Foreign Trade Policy (FTP) sets the framework for exports, imports, and export promotion schemes. India's current FTP (2023–2028) includes schemes like the Remission of Duties and Taxes on Exported Products (RoDTEP) and the Production Linked Incentive (PLI) scheme to boost manufacturing exports.
Key Details
- India's exports in FY2024–25: approximately $778 billion (merchandise + services combined); goods exports around $437 billion
- Export target of $2 trillion by 2030 (combined goods and services) under the National Trade Policy framework; the $1 trillion FY2027 target is the near-term milestone
- Top goods exports: petroleum products, engineering goods, gems and jewellery, pharmaceuticals, chemicals, textiles
- Top services exports: IT/software services, business process management, financial services
- US is India's largest single-country export destination (approximately $85–90 billion in goods exports annually); India runs a significant trade surplus with the US
The $1 trillion export target requires sustained market access across major economies, with the US being the single most important destination. A BTA with competitive tariffs would help Indian exporters — particularly in textiles, pharmaceuticals, chemicals, and engineering goods — compete more effectively against rivals from countries that already have preferential access.
Reciprocal Tariffs and Trade War Dynamics
In 2025, the US administration introduced "reciprocal tariff" measures, proposing to match the tariff rates that trading partners apply on US goods. India, with a weighted average applied tariff of approximately 12–14% (and considerably higher for specific sectors like agriculture and automobiles), faced proposed reciprocal tariffs before the interim reduction to 18%. This policy represents a significant departure from the WTO/GATT principle of gradual, multilateral tariff reduction through negotiated rounds (the Doha Round remains stalled since 2008).
Key Details
- India's average applied MFN tariff: ~12–14% (World Bank / WTO data)
- US average applied MFN tariff: ~3.4% (one of the lowest globally)
- India's agricultural tariff (average): ~37% on US goods; automobile tariffs: >100% (flagged by US negotiators)
- US Generalised System of Preferences (GSP) for India: removed in June 2019, covering ~$5.6 billion of Indian exports
- Doha Development Round: launched 2001, effectively stalled since 2008 (no comprehensive agreement)
The "competitive tariffs" formulation in the negotiations reflects India's need to obtain adequate market access for its exporters while managing domestic sensitivity in agriculture and automobiles — both politically and economically significant sectors where import competition is contested.
- US reciprocal tariff on India (interim arrangement, 2026): 18% (reduced from ~50% proposed earlier)
- India's export target: $1 trillion by FY2027
- India's average applied MFN tariff: ~12–14%
- India's agricultural tariff on US goods (average): ~37%
- India's automobile tariff: >100% (flagged by US as a barrier)
- US GSP benefits withdrawn from India: June 2019 (~$5.6 billion in exports affected)
- India-US goods trade (FY2024–25): approximately $85–90 billion in Indian exports; US is India's #1 export destination
- WTO GATT Article XXIV: governs BTA/FTA permissibility under MFN exception
- GATS Article V: services trade equivalent of GATT Article XXIV
- Doha Round stalled since: 2008
- India FTA milestones: ASEAN (2010), South Korea CEPA (2010), Japan CEPA (2011), UAE CEPA (2022), Australia ECTA (2022)