What Happened
- Analysts have identified three areas where the India-US trade deal may face sustainability challenges
- India's $500 billion purchase target over five years is considered ambitious given current bilateral trade of approximately $129 billion annually
- Questions remain about whether India can fully stop Russian oil imports without severe energy security consequences
- Trump's unpredictable trade policy — including potential future tariff changes — adds uncertainty to the deal's longevity
- The deal framework is an "interim agreement" with a broader Bilateral Trade Agreement (BTA) still under negotiation
Static Topic Bridges
India-US Trade Structure and Balance
India-US bilateral trade has grown significantly but remains characterized by persistent structural features including a trade deficit (from the US perspective) and divergent tariff levels.
- US-India total goods trade in 2024: approximately $129.2 billion
- US goods trade deficit with India in 2024: $45.7 billion (a 5.1% increase over 2023)
- India's average applied tariff rate: approximately 17% (among the highest for large economies)
- US average applied tariff rate: approximately 3.3%
- India's average applied tariff on agricultural products: 39%
- US average applied tariff on agricultural products: 5%
- Top Indian exports to US: pharmaceuticals, gems and jewellery, IT services, petroleum products, textiles
- Top US exports to India: mineral fuels ($14.34 billion), precious stones ($5.31 billion), machinery ($4.42 billion), electrical machinery ($3.38 billion)
- The US applied reciprocal tariff of 18% on Indian goods under Executive Order 14257 (April 2025), later escalated to 50%
Connection to this news: Quadrupling bilateral trade to $500 billion in five years would require India to dramatically increase purchases of US energy, technology, and capital goods — a pace of growth without precedent in India's bilateral trade relationships.
Free Trade Agreements and Interim Trade Deals
Trade agreements exist on a spectrum from limited preferential arrangements to comprehensive free trade agreements. India's approach to trade deals has traditionally been cautious, with few comprehensive FTAs.
- India has signed FTAs/CEPAs with: ASEAN (2010), Japan (2011), South Korea (2010), Singapore (2005), Sri Lanka (1998), and several others
- India withdrew from the Regional Comprehensive Economic Partnership (RCEP) in 2019, citing concerns about Chinese goods flooding the Indian market
- India is negotiating FTAs with the EU, UK, and Australia (Interim agreement signed 2022, comprehensive under negotiation)
- The India-US trade framework is termed an "interim agreement" — a limited arrangement addressing specific barriers while a comprehensive BTA is negotiated
- Key distinction: Interim deals typically cover limited product categories and tariff reductions, while comprehensive FTAs/CEPAs cover goods, services, investment, and intellectual property
- India-UAE CEPA (signed 2022): India's most recent comprehensive trade deal, covering 97% of tariff lines
Connection to this news: The India-US interim agreement is unusual in structure — it combines large purchase commitments with conditional tariff relief rather than traditional reciprocal tariff reduction schedules, raising questions about its fit within WTO-compatible trade frameworks.
Balance of Payments and Current Account Implications
India's current account balance is influenced by trade flows, remittances, service exports, and capital movements. A large increase in imports from any single partner has macroeconomic implications.
- India's current account deficit (CAD) was approximately 1.2% of GDP in FY2024-25
- India's merchandise trade deficit in FY2024-25: approximately $240-250 billion
- India's services trade surplus: approximately $170-180 billion (driven by IT services)
- Remittance inflows: India is the world's largest recipient of remittances (~$120 billion annually)
- Foreign exchange reserves: approximately $640-660 billion (as of early 2026)
- If India imports an additional $100 billion annually from the US (to meet $500 billion over 5 years), the current account impact would depend on whether these purchases substitute existing imports or represent net additions
Connection to this news: A $500 billion purchase commitment over five years (roughly $100 billion per year) would significantly alter India's import composition and could widen the current account deficit unless offset by equivalent export growth or import substitution from other sources.
Key Facts & Data
- Current India-US bilateral trade: ~$129.2 billion (2024)
- US trade deficit with India: $45.7 billion (2024)
- India-US trade deal target: $500 billion in US purchases over 5 years
- India's average tariff rate: ~17%; US average: ~3.3%
- India's CAD: ~1.2% of GDP (FY2024-25)
- India withdrew from RCEP: 2019
- US reciprocal tariff on Indian goods: Initially 18% (April 2025), escalated to 50%
- India's forex reserves: ~$640-660 billion (early 2026)