What Happened
- Commerce Minister Piyush Goyal addressed concerns about the India-US interim trade deal's impact on agriculture, asserting that the agreement will increase farmers' incomes and provide greater market value through a competitive 18% tariff on Indian agricultural exports to the US.
- The government stated that India has "safeguarded 100%" of farmer interests and that the deal does not open Indian markets to meat, poultry, genetically modified foods, soya meal, corn, maize, cereals (rice, wheat), millets, sugar, or pulses.
- Indian agricultural and fisheries exports worth approximately Rs 5 lakh crore annually are projected to potentially double via new markets under the lower reciprocal tariff regime, with zero tariffs on tea, coffee extracts, spices, and vegetable wax.
- India's 18% tariff rate provides a competitive advantage over China (30-35%), Vietnam and Bangladesh (20%), though some competitors continue to enjoy GSP benefits.
- Farm groups including the Samyukt Kisan Morcha (SKM) have criticized the deal, warning of potential adverse impacts on domestic farmers from cheap US agricultural imports.
Static Topic Bridges
India's Agricultural Export Framework
India is among the world's largest agricultural producers and exporters, with the agriculture sector contributing approximately 18% of GDP and employing about 42% of the workforce. India's agricultural exports are governed by the Foreign Trade Policy (FTP 2023, effective April 1, 2023) issued by the Directorate General of Foreign Trade (DGFT) under the Ministry of Commerce and Industry. Export promotion is handled by the Agricultural and Processed Food Products Export Development Authority (APEDA), established under the APEDA Act, 1985.
- India's agri-food exports in FY 2024-25: approximately Rs 5 lakh crore (approximately $60 billion)
- Major export items: rice (largest global exporter), spices, tea, coffee, marine products, sugar, cotton
- APEDA is the nodal agency for export promotion of scheduled agricultural products (14 groups listed in the APEDA Act schedule)
- Agricultural exports are subject to periodic bans/restrictions (e.g., rice export restrictions, onion export bans) for domestic food security
- The National Agricultural Export Policy (2018) targets doubling agri-exports to $60 billion by 2022 and focusing on Clusters and Districts as Export Hubs (CDEHs)
- India's top agricultural export destinations: US, Bangladesh, UAE, China, Vietnam
Connection to this news: The 18% tariff rate (down from 50%) on Indian agricultural exports to the US could significantly enhance competitiveness of Indian spices, tea, coffee, marine products, and processed foods in the American market, provided non-tariff barriers (sanitary and phytosanitary standards, technical barriers) are also addressed.
Minimum Support Price (MSP) and Domestic Agricultural Protection
The Minimum Support Price (MSP) is a price floor set by the Government of India to protect farmers from distress sales. MSP is recommended by the Commission for Agricultural Costs and Prices (CACP, established 1965) and approved by the Cabinet Committee on Economic Affairs (CCEA). MSP currently covers 22 mandatory kharif and rabi crops plus sugarcane (for which a Fair and Remunerative Price or FRP is set). Since 2018-19, MSP is set at a minimum of 1.5 times the comprehensive cost of production (A2+FL cost as per the Swaminathan Committee recommendation).
- CACP recommends MSP based on: cost of production (A2+FL and C2), demand-supply conditions, domestic and international prices, inter-crop price parity, terms of trade, and input costs
- A2 cost = actual paid-out costs; FL = imputed value of family labor; C2 = A2+FL + imputed rent and interest on owned land/capital
- MSP has no statutory backing -- it is an administrative price; there is no legal mandate for private traders to purchase at MSP
- Procurement at MSP is primarily done by FCI (food grains), NAFED (oilseeds and pulses), and CCI (cotton) under the Price Support Scheme (PSS)
- WTO limits India's agricultural subsidies under the Aggregate Measurement of Support (AMS) framework; India's de minimis support ceiling is 10% of value of production for product-specific support
- India has been seeking a permanent solution for public stockholding for food security at WTO, currently protected by the Bali Ministerial Decision (2013) "peace clause"
Connection to this news: The government's assurance that sensitive agricultural products (cereals, pulses, sugar, dairy) are excluded from the deal is designed to protect the MSP-based procurement system and domestic food security architecture from import competition.
Tariff Structure and Effective Rate of Protection
Tariff policy is a key instrument of trade regulation. India uses a multi-layered tariff structure comprising Basic Customs Duty (BCD), Social Welfare Surcharge (SWS at 10% of BCD), Agriculture Infrastructure and Development Cess (AIDC, introduced in Union Budget 2021-22), and Integrated GST (IGST). The effective rate of protection measures the total impact of the tariff structure on domestic producers, taking into account duties on both finished goods and raw materials/intermediates.
- India's trade-weighted average tariff: approximately 18.3% (one of the highest among G20 economies)
- US trade-weighted average tariff: approximately 3.4% (pre-reciprocal tariffs)
- Agriculture Infrastructure and Development Cess (AIDC): introduced in Budget 2021-22, applicable on specific items including crude palm oil, crude soybean oil, gold, silver, and petrol/diesel
- India's applied tariffs are significantly below WTO bound rates for most agricultural products, providing policy space to raise duties if needed
- Inverted duty structure (higher duty on raw materials than finished goods) in some sectors has been a persistent concern addressed through periodic rationalization
- The Customs Tariff Act, 1975 empowers the Central Government to levy customs duties and provides for anti-dumping, countervailing, and safeguard duties
Connection to this news: The 18% reciprocal tariff on Indian exports to the US is below India's own average applied tariff, giving Indian exporters a significant competitiveness boost. The concern is that reciprocal tariff reduction by India on US products may erode effective protection for domestic producers.
Key Facts & Data
- US reciprocal tariff on Indian goods: 18% (down from 50%)
- Zero US tariffs on: tea, coffee extracts, spices, vegetable wax from India
- India's agri-fish exports: approximately Rs 5 lakh crore annually
- Tariff comparison: India 18% vs. China 30-35%, Vietnam/Bangladesh 20%
- Products excluded from Indian market opening: rice, wheat, millets, pulses, sugar, dairy, meat, poultry, GM foods
- MSP coverage: 22 mandatory crops + sugarcane (FRP)
- MSP formula: minimum 1.5 times A2+FL cost (since 2018-19)
- India's agriculture sector: approximately 18% of GDP, approximately 42% of employment
- India's overall applied tariff average: approximately 18.3%; US average: approximately 3.4%