What Happened
- The India-US interim trade deal's $500 billion purchase commitment is expected to be dominated by capital goods rather than consumer goods or agricultural products
- India intends to purchase US energy products, aircraft and aircraft parts, precious metals, technology products (including GPUs and data centre equipment), and coking coal
- Agricultural goods have been excluded from the purchase list, shielding Indian farmers from direct competition
- Bilateral trade is projected to nearly quadruple to $500 billion, but the composition is designed to limit impact on labour-intensive sectors like textiles and farming
- The deal includes commitments to increase trade in ICT goods and expand joint technology cooperation
Static Topic Bridges
Capital Goods Sector and India's Industrial Policy
Capital goods — machinery, equipment, and tools used to produce other goods — form a critical segment of India's industrial economy and import profile. The composition of capital goods imports has significant implications for industrial capacity.
- India's National Capital Goods Policy (2016) aimed to increase production from Rs 2.3 lakh crore to Rs 7.5 lakh crore by 2025 and raise India's share in global capital goods exports from 0.6% to 2.5%
- Heavy electrical equipment accounts for approximately 40% of India's gross capital goods imports
- Earthmoving and mining machinery accounts for 21%, machine tools for 8%
- India's current imports from the US include: nuclear reactors, boilers, machinery ($4.42 billion), electrical machinery ($3.38 billion), and aircraft and parts
- The Production Linked Incentive (PLI) scheme covers several capital goods categories including electronics, telecom equipment, and white goods
- Capital goods imports are generally subject to lower tariff rates than consumer goods, as they support domestic manufacturing
Connection to this news: By concentrating purchases on capital goods and technology products, the trade deal structure ensures that increased imports serve India's industrial upgrading rather than displacing domestic manufacturing or agricultural production.
Make in India and Import Substitution Concerns
India's Make in India initiative (launched 2014) aims to transform India into a global manufacturing hub. Large-scale imports of capital goods can either support or undermine this objective depending on whether they complement or compete with domestic production.
- Make in India covers 27 sectors including defence, automobiles, textiles, food processing, and electronics
- India's manufacturing sector contribution to GDP: approximately 17-18% (target: 25%)
- The Phased Manufacturing Programme (PMP) in electronics mandates increasing local value addition over time
- India's Defence Production Policy emphasises indigenisation — 68 lists of items have been notified for progressive import bans
- Special Economic Zones (SEZs) and National Investment and Manufacturing Zones (NIMZs) provide infrastructure for domestic manufacturing
- Atmanirbhar Bharat (Self-Reliant India) campaign (2020) reinforced import substitution in strategic sectors
- However, capital goods imports that are not manufactured domestically can enhance rather than undermine industrial capacity
Connection to this news: The deal's focus on technology products and GPUs for data centres aligns with sectors where India lacks domestic manufacturing capacity, making these imports complementary to rather than competitive with Make in India objectives.
India's Agricultural Protection and WTO Commitments
India's exclusion of agricultural goods from the import purchase commitment reflects longstanding policy to protect the agrarian sector, which employs approximately 42% of the workforce.
- India's average applied tariff on agricultural products: approximately 39% (compared to US rate of 5%)
- India's Minimum Support Price (MSP) system covers 23 crops, with rice and wheat being the most significant
- India has faced WTO challenges on agricultural subsidies — accused of exceeding the 10% de minimis threshold for product-specific support
- India holds a "developing country" self-designation at the WTO, entitling it to special and differential treatment — a status the US has contested
- The Agreement on Agriculture (AoA) classifies subsidies into three "boxes": Green (permitted), Blue (partially permitted), and Amber (subject to limits)
- India has resisted opening agricultural markets in previous trade negotiations, including withdrawing from RCEP partly due to fears of agricultural imports from Australia and New Zealand
Connection to this news: The exclusion of agricultural goods from the India-US purchase list protects Indian farmers and avoids politically sensitive WTO subsidy disputes, focusing instead on industrial and energy products where trade expansion is less contentious domestically.
Key Facts & Data
- India-US trade deal purchase target: $500 billion over 5 years
- Key purchase categories: Energy products, aircraft parts, precious metals, technology products (GPUs, data centre equipment), coking coal
- Agricultural goods: Excluded from purchase list
- India's agricultural tariff rate: ~39% (vs US at ~5%)
- India's manufacturing share of GDP: ~17-18% (target: 25%)
- Heavy electrical equipment: 40% of India's gross capital goods imports
- India's current imports from US: Mineral fuels ($14.34B), precious stones ($5.31B), machinery ($4.42B), electrical machinery ($3.38B)
- Agricultural employment in India: ~42% of total workforce