What Happened
- Indian exports worth approximately $44 billion will enter the US market with zero reciprocal tariffs under the first phase of the bilateral interim trade agreement.
- An additional $30 billion worth of goods, primarily from labour-intensive sectors like textiles, apparel, leather, and footwear, will face a reduced 18% tariff (down from 50%).
- Goods worth approximately $12 billion, including steel, copper, and certain auto components, will continue to face existing tariff rates without change.
- India committed to purchasing $500 billion worth of US products over five years, covering energy products, aircraft and aircraft parts, precious metals, technology products, and coking coal.
- Zero-duty Indian exports include generic pharmaceuticals, gems and diamonds, aircraft parts, and smartphones, which were already major export categories.
Static Topic Bridges
India's Export Basket Composition and US Trade Relationship
India-US bilateral trade has grown to become one of the world's most significant trading relationships. The US is India's largest trading partner, with total bilateral goods trade crossing $120 billion. India's export composition to the US reflects the country's comparative advantages in labour-intensive manufacturing, IT-enabled services, and pharmaceuticals.
- India's total goods exports to the US were approximately $86 billion in 2024-25
- Top Indian export categories to the US: gems and jewellery (~$9-10 billion), pharmaceuticals (~$8-9 billion), textiles and apparel (~$10.5 billion), IT hardware/smartphones (~$7-8 billion), petroleum products, and organic chemicals
- India accounts for approximately 40% of all generic drug prescriptions filled in the US
- India runs a goods trade surplus with the US of approximately $35-40 billion, which has been a longstanding US concern
- The deal structure (zero duty on $44 billion, 18% on $30 billion, unchanged on $12 billion) covers the entirety of India's export basket to the US
Connection to this news: The tiered tariff structure ensures that India's highest-value, low-sensitivity exports (pharmaceuticals, gems, tech products) enter duty-free, while labour-intensive sectors get meaningful relief at 18%, and strategically sensitive items like steel and copper remain under existing tariff regimes.
India's $500 Billion Purchase Commitment: Energy Security Diversification
India's commitment to purchase $500 billion of US products over five years covers energy products, aircraft, technology, precious metals, and coking coal. This has significant implications for India's energy import diversification strategy. India imports 85-90% of its crude oil needs and is the world's third-largest energy consumer.
- India's annual energy import bill is approximately $150-180 billion
- US LNG exports to India have been growing, with long-term contracts already signed between Indian companies and US LNG terminals
- India imported approximately 26 million tonnes of LNG in 2024-25, with Qatar, Australia, and the US as primary suppliers
- India's coking coal imports (for steel production) are approximately 55-60 million tonnes annually, primarily from Australia
- The purchase commitment reportedly includes existing contracts and projects, not only new procurement
Connection to this news: The $500 billion commitment aligns with India's energy security strategy of diversifying away from dependence on any single region, while also addressing the US trade deficit concern by channelling imports of products India already needs (LNG, coking coal, aircraft) from US sources.
Phased Trade Agreements: The Interim-to-Comprehensive Model
The India-US trade deal follows a phased approach: an interim agreement addressing immediate tariff irritants, followed by a comprehensive Bilateral Trade Agreement (BTA). This approach has precedents in global trade practice, where complex bilateral relationships are addressed incrementally.
- The BTA negotiations were formally launched by Trump and Modi on 13 February 2025
- The interim agreement framework was released on 6 February 2026, approximately one year into negotiations
- The interim agreement is expected to be formalised by mid-March 2026
- Phase 1 covers tariff reductions; subsequent phases are expected to address services trade, investment rules, intellectual property, digital trade, and regulatory convergence
- Similar phased approaches were used in the US-China Phase 1 deal (January 2020) and the US-Japan trade agreement (October 2019)
Connection to this news: The interim framework allows both countries to demonstrate quick wins (tariff relief for Indian exporters, market access for US goods) while deferring more contentious issues like services trade liberalisation, data localisation rules, and agricultural subsidies to later phases.
Key Facts & Data
- $44 billion of Indian exports to US: zero reciprocal tariff
- $30 billion of Indian exports (labour-intensive sectors): 18% tariff (down from 50%)
- $12 billion of Indian exports (steel, copper, auto parts): tariff rates unchanged
- India's $500 billion purchase commitment: US energy, aircraft, technology, precious metals, coking coal over 5 years
- Zero-duty Indian exports: generic pharmaceuticals, gems and diamonds, aircraft parts, smartphones
- India-US total bilateral goods trade: over $120 billion
- India's goods trade surplus with the US: approximately $35-40 billion
- Interim agreement expected to be formalised by mid-March 2026
- BTA negotiations launched: 13 February 2025