CNBC's Inside India newsletter: The facts — and frictions — of the U.S.-India trade deal
This report is from this week’s CNBC’s “Inside India” newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse. Subscribe here.
The big story
“It’s easier said than done,” is a phrase I have now heard several times from different experts as we discussed the feasibility of the terms of the U.S.-India trade deal.
Less than a week after the India-EU trade pact was finalized, U.S. President Donald Trump on Monday announced in a post on Truth Social that he had agreed a deal with Indian Prime Minister Narendra Modi, calling him a “great friend.”
Trump said Washington would cut tariffs on Indian goods to 18% from 50%, while New Delhi will lower duties on U.S. goods to zero, replace Russian oil with supply from U.S. and Venezuela, open sensitive markets such as agriculture and buy $500 billion worth of American goods.
Modi, in his response on X, expressed delight over the lowering of tariff of 18%, thanked Trump and extended support for his “efforts for [global] peace.”
Despite the outpourings of warm sentiment on both sides, the deal risks being derailed. What was said by the two leaders — and what was left unsaid — is already leading to confusion.
“US President Trump’s claims that India will slash duties to zero, stop importing Russian oil, and raise US imports to US $500 bn have not yet been confirmed by the Indian authorities,” said Alexandra Hermann, lead economist at Oxford Economics.
“They look unrealistic to us, which in turn raises risks of US backtracking,” she added.
That would not be the first time Trump reverses a trade deal.
Last month, Trump raised tariffs on South Korean imports back to 25% from 15%, pointing to a delay in the South Korean legislature approving the agreed trade deal.
Nomura in a report on Tuesday said that India’s trade deal with the U.S. is a significant breakthrough, but “no deal is certain,” citing Trump’s renewed threat to raise tariffs on South Korea.
Disputed sector
India’s first official deviation from the terms of trade proposed by Trump came on Tuesday as New Delhi’s Commerce and Industry Minister Piyush Goyal said the deal will protect “the interest of our agriculture and our dairy sectors in full respect.”
His counterparts in Washington, however, are doubling down on Trump’s claim that India will remove non-tariff barriers to its agricultural market for the U.S. and remove tariffs on a majority of farm imports.
On Wednesday, U.S. Trade Representative Jamieson Greer said India will cut tariffs to zero on a “vast” set of agricultural goods, adding that there will be some protection around few certain key areas.
“For a variety of things like tree nuts, wine, spirits, fruits, vegetables, tariffs will go down to zero,” Greer told CNBC’s Squawk Box. “It is a big win.”
The domestic farm sector is important for both the U.S. and Indian administrations.
In December last year, the Trump administration doled out a $12 billion aid package to support farmers, who are facing financial distress due to the trade war between the U.S. and its top economic partners.
Washington needs newer markets, as trade ties with its second and fifth largest agricultural export markets, Canada and the European Union, respectively, have been deteriorating. The U.S. president even threatened Canada with 100% tariffs, if it signs a trade deal with China. His plans to annex Greenland have also led to souring of ties between the E.U. and the U.S.
As for India, farming is the primary source of livelihood for about 42% of India’s 1.4 billion population — and is hence a politically sensitive issue. The Modi government’s last attempt to introduce farm reforms ended in a failure in 2021, facing intense protests from farm lobbies in the country.
India is likely to remain cautious about sweeping tariff reductions in “politically sensitive areas such as agriculture” where domestic considerations “remain strong,” said Reema Bhattacharya, head of Asia risk insight, corporate risk and sustainability at Singapore-based consultancy Verisk Maplecroft.
This year, three major state elections are due — in West Bengal, Tamil Nadu and Kerala, all of which are ruled by opposition political parties and have strong farm lobbies.
The Indian government has been scant with details about the trade deal and is battling questions from opposition political parties. The leader of India’s opposition, Rahul Gandhi, has accused Modi of being “Compromised” and of having “surrendered on Tariffs.”
“Without adequate adjustment measures, a surge in lower-priced food imports could displace certain indigenous products, dampen incentives for domestic value addition, and weaken parts of the FMCG ecosystem,” said Nitin Bhasin, head of institutional equities at Indian brokerage and research firm Ambit.
Energy security disagreement
Questions are also being raised about the feasibility of Washington’s demand for India to stop purchases of Russian oil completely and replace it with U.S. or Venezuelan oil.
If India stops buying Russian crude entirely, it will damage the long-standing relationship between New Delhi and Moscow, experts said.
“New Delhi will not sever its strategically important relationship with Moscow,” said Chietigj Bajpaee, senior research fellow for South Asia at Chatham House.
On Wednesday, India’s trade and commerce minister reiterated the country’s position that energy security was a top priority for the government. He added that decisions around energy purchases were made based on market and “evolving international dynamics.”
Despite U.S. sanctions on Russian oil companies and repeated claims by Washington about India halting Russian oil imports, data from consultancy firm Rystad Energy shows Russia remains the top crude oil supplier to New Delhi with 1.06 million barrels per day shipped in January.
Kremlin has insisted that New Delhi has not made “any statements” on stopping supplies from Russia.
India is a price-sensitive buyer in the global oil trade, said Avani Bhatnagar senior analyst of oil markets at Rystad Energy, adding that “India’s pivot away from Russian crude would likely increase procurement costs.”
Experts say that at present, Russian crude is cheaper than its peers due to U.S. sanctions, and replacing it with U.S. crude will not be economical because of higher freight costs.
Data from commodity intelligence firm Kpler shows that Russian ural crude is currently trading at a discount of $11 per barrel against U.S. Brent. Middle Eastern crude grades cost up to $9 per barrel more than Russian oil.
“Russian crude is significantly cheaper,” said Muyu Xu, senior oil analyst at Kpler, adding that halting purchases would squeeze refining margins for Indian state-owned companies such as Indian Oil and Bharat Petroleum.
With strategic and economic interests at stake, India is unlikely to stop Russian crude imports, according to experts. However, that is a key demand from Washington, so this could be another point of friction in the trade deal.
“The energy tradeoff for India is potentially a worse import bill and current account pressures at a time when capital outflow pressures from India are persistent,” said Louise Loo, head of Asia economics at Oxford Economics.
Buying American
Adding further stress to India’s import bill is the commitment to buy more American goods.
India’s overall goods import stood at $720.24 billion in financial year 2025, with its trade deficit at $94.3 billion. That includes goods worth $45.3 billion from the U.S.
Now, the U.S. administration wants India to buy half a trillion worth of American defense, transportation, energy and farm goods. Even at a staggered pace, experts believe this number would be hard to achieve.
“Analysts would be wise to ignore some of the numbers in the deal, or at least treat them as aspirational,” Evan A. Feigenbaum, vice president for studies at the Carnegie Endowment for International Peace, said in an article on Tuesday.
The Indian commerce minister has hinted that New Delhi could increase imports from the U.S. in sectors such as energy, nuclear power, data centers and aviation, but did not share much details.
Bajpaee of Chatham House said that India could buy products from those sectors, but “reaching the target of $500bn is a stretch.”
Neither side has announced an explicit date for the formal announcement of the deal but India’s Goyal said a joint statement will be issued soon.
Meanwhile, Bhattacharya of risk management firm Verisk suggests investors to look at “headline pledges as opening positions rather than settled outcomes.” As negotiators hammer out details, she said there could be scope for “renewed friction.”