India-US Interim Trade Agreement: Tariff Cuts, Energy Commitments, and the Road to a Full BTA
The United States and India announced a framework for an Interim Trade Agreement in February 2026, lowering the IEEPA-based US reciprocal tariff on Indian goods from 25% to 18%.
An Executive Order signed on February 6, 2026 also eliminated a separate 25% penalty tariff that had been imposed on Indian goods related to India's purchases of Russian oil.
India committed to eliminating or reducing tariffs on all US industrial goods and a wide range of food and agricultural products, and to purchasing USD 500 billion worth of US energy, aircraft, technology products, and coking coal over 5 years.
The interim deal is a step toward a broader US-India Bilateral Trade Agreement (BTA) — formal negotiations for which were launched on February 13, 2025.
The full text of the interim agreement was not made public; implementation of certain further reductions (to 18%) is to be "promptly" executed, but the precise timeline remains undefined.
A subsequent US Supreme Court ruling raised questions about the legal basis of the IEEPA tariff authority, giving India additional leverage in continued negotiations.
IEEPA: International Emergency Economic Powers Act and US Tariff Authority
The International Emergency Economic Powers Act (IEEPA) is a US federal law (50 U.S.C. § 1701 et seq.) enacted in 1977 that grants the US President broad authority to regulate international commerce and financial transactions in response to a declared national emergency. The Trump administration used IEEPA authority to impose "reciprocal tariffs" on multiple countries including India, without going through the WTO or Congressional approval processes.
The interim deal represents a de-escalation of IEEPA-based trade pressure on India, in exchange for Indian concessions on tariffs and a large energy purchase commitment — a pattern similar to deals struck with other countries under the same framework.
India-US Bilateral Trade Agreement (BTA): Architecture and Status
The India-US BTA is a comprehensive proposed trade agreement that goes beyond an interim tariff deal. Formal Terms of Reference were established in April 2025. The BTA is designed to cover goods tariffs, services market access, investment rules, intellectual property, labor, environment, government procurement, and non-tariff barriers — making it a more ambitious undertaking than a simple interim arrangement.
The interim agreement buys time and good faith for both sides while the more complex BTA is negotiated — but the deferred publication of the full interim text means key concessions (particularly on agricultural market access) remain unclear.
India's Trade Policy Framework: From WTO Commitments to Bilateral Deals
India's external trade policy is administered by the Ministry of Commerce and Industry, under the EXIM Policy / Foreign Trade Policy framework. India is a founding member of the WTO (1995) and is bound by WTO commitments (GATT 1994 tariff schedules, GATS for services). Bilateral and regional Free Trade Agreements (FTAs) operate as exceptions under WTO's Article XXIV (for goods) and Article V (GATS, for services).
The India-US interim deal signals a shift toward managed bilateralism over multilateral WTO frameworks in US trade policy — a trend India must navigate carefully to protect its WTO-bound commitments and relationships with other trading partners.
- US reciprocal tariff on India (pre-deal): 25% (IEEPA-based)
- US reciprocal tariff on India (post-deal): 18%
- Additional penalty tariff on India (related to Russian oil purchases): 25% — eliminated February 6, 2026
- India's commitment: USD 500 billion in US energy, aircraft, technology purchases over 5 years
- India-US bilateral trade (2024): ~USD 190 billion (US trade deficit ~USD 45 billion against India)
- India's average MFN tariff rate: ~17–18% (among higher G20 levels)
- BTA formal negotiations launched: February 13, 2025
- India's GSP suspended by US: 2019 (under Section 2462, Trade Act 1974)
- India is a WTO founding member (January 1, 1995)