What Happened
- The White House announced that the US and India will finalize an Interim Agreement in the coming weeks, cutting tariffs on US goods and paving the way for a comprehensive Bilateral Trade Agreement (BTA).
- The US reduced reciprocal tariffs on Indian goods from 50% to 18%, covering sectors including textiles, leather, footwear, plastics, organic chemicals, and machinery.
- India committed to tariff reductions on all US industrial goods and agricultural products including dried distillers' grains, red sorghum, tree nuts, soybean oil, and alcoholic beverages, while protecting sensitive sectors like dairy and rice.
- Both countries committed to negotiating bilateral digital trade rules, with ongoing discussions covering services and investment, labour standards, government procurement, digital trade, and supply chain resilience.
- The framework envisions India purchasing approximately $500 billion worth of US products including energy, aircraft parts, coking coal, technology products, and GPUs.
Static Topic Bridges
India's Trade Policy Framework — From Protectionism to Calibrated Openness
India's trade policy has evolved from near-autarky under the import-substitution regime (1950s-1991) through the 1991 liberalization, to the current approach of calibrated openness through bilateral and multilateral trade agreements. The Department of Commerce under the Ministry of Commerce and Industry formulates India's trade policy, while the Directorate General of Foreign Trade (DGFT) implements it.
- India's Foreign Trade Policy (FTP) 2023 replaced the earlier 5-year FTP cycle with a dynamic, responsive policy framework, incorporating Advance Authorization, DFIA, EPCG, and export promotion schemes.
- India's average applied tariff: approximately 18.1% (among the highest for major economies, compared to the US at 3.4% and the EU at 5.1%).
- India's inverted duty structure (higher tariffs on raw materials/intermediates, lower on finished goods) has been a persistent issue, particularly in electronics, chemicals, and textiles.
- India exited the Regional Comprehensive Economic Partnership (RCEP) in November 2019 over concerns about Chinese goods flooding Indian markets, reflecting India's cautious approach to comprehensive FTAs.
Connection to this news: The India-US Interim Agreement represents India's calibrated approach — granting tariff concessions on select goods while protecting sensitive sectors (dairy, rice), using the interim format to test the trade relationship before committing to a comprehensive BTA.
Section 301 and US Trade Remedy Instruments
Section 301 of the US Trade Act of 1974 empowers the US Trade Representative (USTR) to investigate and take action against foreign country practices that are deemed unreasonable or discriminatory and burden US commerce. This instrument has been central to US-India and US-China trade disputes.
- Section 301 allows the USTR to impose tariffs, suspend trade agreement concessions, or negotiate agreements to address unfair trade practices.
- The US invoked Section 301 against India in 2019, terminating India's benefits under the Generalized System of Preferences (GSP), citing India's failure to provide equitable and reasonable market access.
- India was the largest beneficiary of the US GSP program, with approximately $6.3 billion in duty-free exports before termination.
- WTO's Dispute Settlement Understanding (DSU) technically requires trade disputes to be resolved through the multilateral system rather than unilateral Section 301 actions, though enforcement has weakened with the Appellate Body crisis since December 2019.
Connection to this news: The US reciprocal tariffs on India (initially 25%, escalated to 50%, now reduced to 18%) were imposed through executive authority similar to Section 301 mechanisms, outside the WTO framework, underscoring the shift from multilateral to bilateral trade governance.
Generalized System of Preferences (GSP) and India
The GSP is a preferential tariff system extended by developed countries to developing countries under the UNCTAD framework, permitted by the GATT Enabling Clause (1979). The US GSP program, authorized under Title V of the Trade Act of 1974, provides duty-free treatment for eligible products from designated beneficiary developing countries.
- India was removed from the US GSP program effective June 5, 2019.
- Before removal, India was the largest GSP beneficiary, exporting approximately $6.3 billion worth of goods duty-free to the US in 2018.
- Key Indian exports under GSP: auto components, chemicals, precious metals, building materials, textiles.
- Other GSP programs: EU's GSP, GSP+, and Everything But Arms (EBA) scheme; Japan's GSP; Australia's DFQF (Duty-Free Quota-Free) for LDCs.
- GSP restoration for India has been a recurring demand in bilateral trade talks.
Connection to this news: The Interim Agreement's provision of zero-duty access for select Indian exports (generic pharmaceuticals, gems, diamonds, aircraft parts) partially addresses the loss of GSP benefits, while a comprehensive BTA could formalize preferential market access on a reciprocal basis.
Key Facts & Data
- US reciprocal tariff on India: 18% (reduced from 50%)
- Additional 25% tariff: removed (linked to Russian oil purchase commitments)
- India's intended purchases: approximately $500 billion in US products
- India-US bilateral trade (FY2024-25): $131.84 billion
- India's trade surplus with US: approximately $41.18 billion
- India removed from US GSP: June 5, 2019; $6.3 billion in duty-free exports lost
- BTA negotiation areas: services, investment, labour standards, government procurement, digital trade, supply chain resilience
- Indian sensitive sectors protected: dairy and rice excluded from tariff concessions