What Happened
- India and the United States announced a framework for an Interim Agreement on reciprocal trade, with the US reducing its reciprocal tariff on Indian goods from 50% to 18%.
- India committed to eliminate or reduce tariffs on all US industrial goods and a range of agricultural products including dried distillers' grains, red sorghum, tree nuts, soybean oil, wine and spirits, and fresh and processed fruit.
- Both countries committed to negotiating bilateral digital trade rules addressing discriminatory or burdensome practices, with the revised White House fact sheet dropping earlier language about India eliminating its digital services tax.
- India expressed intention to purchase approximately $500 billion worth of US energy, technology, agricultural, coal, and defence products.
- The US also removed an additional 25% tariff imposed on India in connection with crude oil purchases, and certain Indian exports (generic pharmaceuticals, gems and diamonds, aircraft parts) may qualify for zero-duty access upon conclusion of the Interim Agreement.
Static Topic Bridges
India's Equalization Levy (Digital Services Tax)
India introduced the Equalization Levy (EL) in 2016 through the Finance Act 2016, initially at 6% on non-resident companies providing online advertising services to Indian businesses. In 2020, via the Finance Act 2020, a 2% EL was imposed on non-resident e-commerce operators facilitating sales of goods or services in India, effective from April 1, 2020.
- The 6% EL (2016) targeted digital advertising revenue earned by companies like Google and Facebook from Indian clients.
- The 2% EL (2020) had a much broader scope — covering any e-commerce supply or service by a non-resident e-commerce operator, applicable when annual revenue exceeded Rs. 2 crore.
- In July 2024, India abolished the 2% EL effective August 1, 2024, as a step toward implementing the OECD/G20 Inclusive Framework's Pillar One solution on profit reallocation.
- India and the US had reached a transitional agreement in November 2021, under which India would provide credits for excess EL collected during the interim period against future Pillar One liabilities.
Connection to this news: The trade negotiations include discussions on digital trade rules. While the initial White House fact sheet claimed India would remove its digital services taxes, the revised version only states that India committed to negotiate bilateral digital trade rules — reflecting the complexity of the Pillar One negotiations.
Reciprocal Tariffs and Trade Barriers
Reciprocal tariffs are duties imposed by a country to match or respond to tariffs levied by a trading partner, aiming to create a level playing field. Unlike MFN tariffs applied uniformly under WTO rules, reciprocal tariffs target specific bilateral trade imbalances.
- India's trade-weighted average tariff is approximately 18.1% (WTO data), compared to the US average of approximately 3.4%.
- The US imposed escalating tariffs on India: starting at 25% (initial reciprocal tariff), rising to 50%, now reduced to 18% under this framework.
- India's significant non-tariff barriers include: quality control orders, import licensing requirements, and phytosanitary restrictions on agricultural products.
- WTO's Dispute Settlement Body adjudicates whether reciprocal tariffs violate GATT Article I (MFN) or Article II (tariff bindings); unilateral reciprocal tariffs outside WTO frameworks are legally contentious.
Connection to this news: The reduction of US reciprocal tariffs from 50% to 18% on Indian goods, and India's commitment to reduce tariffs on US industrial and agricultural products, represents a significant bilateral tariff adjustment outside the WTO's multilateral framework.
India-US Bilateral Trade Relationship
India-US bilateral trade has grown substantially, with the US being India's largest trading partner for four consecutive years through FY2024-25. The trade relationship covers goods, services, defence, and technology, governed through mechanisms including the Trade Policy Forum (TPF) re-established in 2021.
- India-US bilateral trade (FY2024-25): $131.84 billion — India's exports to US: $86.51 billion; imports from US: $45.33 billion.
- India's trade surplus with the US: approximately $41.18 billion (a key irritant in bilateral relations).
- Top Indian exports to US: pharmaceuticals, IT services, textiles, gems and jewelry, petroleum products.
- Top US exports to India: crude oil, LNG, aircraft, machinery, medical devices.
- India-US Trade Policy Forum (TPF): ministerial-level mechanism with working groups on agriculture, investment, services, tariff and non-tariff barriers, and IP.
Connection to this news: India's commitment to purchase $500 billion worth of US products and reduce tariffs addresses the bilateral trade deficit, a longstanding concern in the relationship, while the interim agreement framework paves the way for a comprehensive Bilateral Trade Agreement.
Key Facts & Data
- US reciprocal tariff on India: reduced from 50% to 18%
- India's planned purchases: $500 billion in US energy, technology, agricultural, and coal products
- India-US bilateral trade (FY2024-25): $131.84 billion
- India's trade surplus with US: approximately $41.18 billion
- India's 2% Equalization Levy: abolished effective August 1, 2024
- Select Indian exports eligible for zero duty: generic pharmaceuticals, gems and diamonds, aircraft parts
- Indian tariff concessions on: dried distillers' grains, red sorghum, tree nuts, soybean oil, wine, spirits
- Non-tariff barrier negotiations: to be completed within six months