What Happened
- The United States and India announced a framework for an Interim Trade Agreement on 2 February 2026, with the US reducing its reciprocal tariff on Indian goods from 50% to 18% through an executive order, effective within 4-5 days of the joint statement
- The deal includes India's commitment to purchase USD 500 billion worth of US products over 5 years, covering energy products, aircraft and aircraft parts, technology products, coking coal, and precious metals
- India agreed to eliminate or reduce tariffs on all US industrial goods and a wide range of food and agricultural products, including dried distillers' grains, red sorghum, tree nuts, fresh and processed fruit, soybean oil, wine and spirits
- India's trade surplus with the US is projected to exceed USD 90 billion annually within a year, driven by a surge in Indian exports potentially crossing USD 100 billion, according to a recent research report
- India also committed to stop purchasing Russian Federation oil, in exchange for which the US removed an additional 25% tariff that had been imposed on Indian imports
Static Topic Bridges
India-US Trade Architecture -- From TIFA to Bilateral Trade Agreement
India and the US have historically lacked a comprehensive trade agreement. Their trade relationship has been governed by the Trade and Investment Framework Agreement (TIFA), which provides a strategic framework for dialogue but is not a binding trade deal. The US withdrew India's Generalized System of Preferences (GSP) benefits in June 2019, removing preferential duty treatment on approximately USD 5.6 billion worth of Indian exports. The February 2026 interim deal is the first substantive bilateral trade agreement between the two countries.
- India-US TIFA: Provides framework for trade dialogue; not a binding trade agreement
- GSP withdrawal (June 2019): Removed preferential duty on USD 5.6 billion of Indian exports; affected pharmaceuticals, textiles, agricultural products, auto parts
- Interim Trade Agreement (February 2026): US tariff reduced from 50% to 18%; India to cut tariffs on US industrial and agricultural goods
- Upon successful conclusion: US to further remove tariffs on generic pharmaceuticals, gems and diamonds, aircraft parts
- Broader Bilateral Trade Agreement (BTA) negotiations to follow, targeting additional market access commitments and supply chain resilience
- Target: USD 500 billion bilateral trade by 2030 (current level: USD 132.2 billion in FY 2024-25)
Connection to this news: The interim deal represents a fundamental shift from the earlier TIFA-only framework to an actual binding trade agreement. The phased structure -- immediate US tariff reduction via executive order, followed by India's tariff rollback from mid-March, and comprehensive BTA negotiations -- shows a deliberate sequencing strategy.
Reciprocal Tariffs and Trade Policy Tools
Reciprocal tariffs are duties imposed by one country on imports from another, often calibrated to match or counter the tariffs applied by the other party. They differ from Most Favoured Nation (MFN) tariffs, which are uniform rates applied to all WTO members. The use of executive orders to adjust tariff rates (as in this deal) reflects the US Trade Expansion Act of 1962, Section 232 (national security tariffs), and the International Emergency Economic Powers Act (IEEPA).
- MFN tariffs: Uniform rates applied to all WTO members under the non-discrimination principle (GATT Article I)
- Bound tariffs: Maximum tariff rates committed by countries under WTO negotiations; actual applied rates can be lower
- India's average bound tariff is approximately 48.5%; applied MFN average is approximately 17-18%
- The US had escalated tariffs on India to 50% through successive executive actions over 10 months before this deal
- The 18% reciprocal tariff under the deal applies to originating goods from India, including textiles, leather, footwear, plastic, rubber, organic chemicals, home decor, artisanal products, and certain machinery
- WTO compatibility concerns: Bilateral preferential tariffs technically require a Free Trade Agreement or Customs Union under GATT Article XXIV, or a waiver
Connection to this news: The deal's tariff structure -- 18% on Indian goods -- is a negotiated reciprocal rate. The use of an executive order for immediate implementation bypasses Congressional approval but may face legal and WTO scrutiny regarding compliance with multilateral trade rules.
India's Trade Balance Dynamics with the United States
India has maintained a trade surplus with the United States, which has been a source of friction in bilateral relations. India's exports to the US are dominated by generic pharmaceuticals, IT services, gems and jewellery, petroleum products, textiles, and engineering goods. US exports to India include energy products (crude oil, LNG, coal), aircraft, defence equipment, and agricultural commodities.
- India-US bilateral trade FY 2024-25: USD 132.2 billion (record high)
- India's exports to the US FY 2024-25: USD 86.51 billion (up 11.6% from USD 77.52 billion in FY 2023-24)
- US exports to India FY 2024-25: USD 45.33 billion (up 7.44% from USD 42.2 billion)
- India's trade surplus with the US FY 2024-25: USD 41.18 billion
- US goods trade deficit with India (2024, US Census data): USD 45.8 billion (up 5.9% from 2023)
- The US is India's largest trading partner for the fourth consecutive year (FY 2024-25)
- Projection: India-US trade likely to touch USD 300 billion in FY 2026-27; trade surplus projected to cross USD 90 billion within a year as Indian exports potentially cross USD 100 billion
Connection to this news: The projected surge in India's trade surplus to over USD 90 billion could create future friction despite the current goodwill. The deal's USD 500 billion US procurement commitment over 5 years is designed to partially offset this growing surplus by boosting India's imports of US energy, defence, and technology products.
India's Energy Import Diversification
India is the world's third-largest energy consumer and is heavily dependent on imported energy. The deal's requirement for India to stop purchasing Russian oil and instead increase US energy imports (coal, LNG, crude) represents a strategic realignment of India's energy supply chain. India had significantly increased Russian oil imports after 2022, with Russian crude accounting for over 35% of India's oil imports by 2025.
- India's crude oil import dependence: approximately 87% (2024-25)
- Russian crude share in India's oil imports: exceeded 35% by 2025 (up from under 2% pre-2022)
- The deal commits India to purchasing US energy products including coking coal as part of the USD 500 billion package
- India's annual fuel import bill could decrease by approximately USD 3 billion through diversification of crude oil sourcing
- US is already a major LNG supplier to India; this deal further deepens energy trade
- The energy commitment links trade policy to geopolitical alignment, reflecting the broader strategic partnership
Connection to this news: The energy dimension of the deal -- India pivoting away from Russian oil toward US energy imports -- represents a significant geopolitical shift. This links trade economics to foreign policy, making it relevant for both GS2 (International Relations) and GS3 (Energy Security) in the UPSC framework.
Key Facts & Data
- India-US interim trade deal announced: 2 February 2026
- US tariff on Indian goods: Reduced from 50% to 18% (effective via executive order)
- India's tariff commitment: Eliminate or reduce duties on all US industrial goods and select agricultural products; rollback from mid-March 2026
- India's procurement commitment: USD 500 billion in US products over 5 years
- India-US bilateral trade FY 2024-25: USD 132.2 billion (record)
- India's trade surplus with the US FY 2024-25: USD 41.18 billion
- India's exports to the US FY 2024-25: USD 86.51 billion (up 11.6% YoY)
- Projected trade surplus: Over USD 90 billion within a year; exports potentially crossing USD 100 billion
- GSP withdrawal: June 2019, affecting USD 5.6 billion of Indian exports
- Bilateral trade target: USD 500 billion by 2030; likely to reach USD 300 billion in FY 2026-27
- India's crude oil import dependence: approximately 87%