India–US Trade Deal: Who Will Benefit — India or the United States? And Why Not Zero Tariffs for Both Nations?
The India–US Interim Trade Agreement, finalized on February 7, 2026, marks a significant shift in bilateral economic relations, aiming to de-escalate prior trade tensions and lay the groundwork for a more comprehensive partnership. This agreement reduces US tariffs on Indian goods from 50% to 18% and includes India’s commitment to purchase $500 billion worth of US energy, aircraft, technology, and coking coal over the next five years.
Key Provisions of the 2026 Agreement
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Tariff Reductions: The US has lowered tariffs on Indian goods, notably removing a 25% punitive surcharge imposed in August 2025.
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Purchase Commitments: India pledges significant purchases from the US, enhancing bilateral trade volumes.
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Energy Pivot: India agrees to reduce its dependence on Russian crude oil, shifting procurement towards the US and potentially Venezuela.
Benefits for India
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Export Competitiveness: Lowered tariffs restore price competitiveness for Indian sectors like textiles, apparel, leather, and footwear.
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Zero-Duty Access: Select sectors, including generic pharmaceuticals, gems and diamonds, and aircraft parts, gain zero-tariff access to the US market.
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Market Access: Improved access to the $30 trillion US market is expected to generate substantial employment opportunities in India.
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Strategic Positioning: India positions itself as a preferred alternative in global supply chains, especially as companies seek to diversify away from China.
Benefits for the US
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Guaranteed Sales: India’s $500 billion purchase commitment provides a stable market for US energy, aerospace, and high-tech sectors.
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Geopolitical Advantage: India’s reduced reliance on Russian energy aligns with US foreign policy objectives.
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Agricultural Market Entry: India will lower tariffs on various US agricultural products, opening new markets for American farmers.
Why Not Zero Tariffs for Both Nations?
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Protection of Sensitive Sectors: India safeguards its agriculture and MSMEs from potential adverse impacts of unrestricted imports.
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Economic Development Stages: Differences in economic maturity between the two nations necessitate a cautious approach to tariff elimination.
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Revenue Considerations: Tariffs constitute a significant revenue source for India, and their elimination would require fiscal adjustments.
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Negotiation Leverage: Maintaining some tariffs allows both countries to retain bargaining power for future negotiations.
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Non-Tariff Barriers: Even with zero tariffs, other barriers like sanitary standards and regulatory approvals can impede trade.
The interim agreement serves as a foundational step towards a comprehensive Bilateral Trade Agreement (BTA), aiming to address more complex issues such as digital data flows, labor standards, and further tariff reductions. While immediate benefits are evident for both nations, the long-term success of this partnership will depend on continued negotiations and mutual concessions.
