For Indian apparel and textile exporters, this has somewhat come has a shock. However, the devil lies in the details. There is no clarity on the quantum or the kind of clothing that Washington will source from Dhaka at 0% tariff. Despite reports suggesting that the US Bangladesh trade deal will be a blow for Indian garment exporters, it may be too early to read the real picture. The recent trade pacts that the US has signed bear several hidden clauses which actually drive the deals.

Apart from the US, the EU is also a key market for India, with which New Delhi sealed the much awaited trade deal last month.  

For India, under the interim trade framework with the US, items made of silk will attract no duty in a US$ 113 billion American market.

India’s total exports to the US stood at $86.35 billion in 2024.

Negotiations Likely

Despite the annoucement of the finalisation of the interim pact, the battle for Indian negotiators has just begun. First, the announcement of the framework has been made but there is little clarity on when the deal will be sealed. Second, subsequent to the interim agreement, negotiations for the bilateral trade agreement are likely to kickstart. Issues related to intellectual property rights and government procurement to name a few would need to get discussed and appropriately negotiated.

“Those are not easy issues. The path ahead will be strewn with challenges, and it's really up to our negotiators how they are able to navigate very, very difficult times ahead,” Abhijit Das, international trade and WTO expert, told The Secretariat.

Das, however, added that the US-Bangladesh pact could mean India's gains will be minimised.

“The US-Bangladesh agreement has injected yet another layer of challenge, yet another dimension of uncertainty into the trading environment for Indian exporters,” he said.

While the specific products and quantities which will benefit from the zero reciprocal tariff will be a matter of negotiation, certainly this 1% advantage that our exporters might have envisaged, that is likely to turn into an 18% disadvantage for certain categories

— Abhijit Das, international trade and WTO expert

Das further said that the US may have a similar deal with other economies as well with even lower reciprocal tariffs.

As part of the India-US interim agreement, the effective reciprocal tariff for India will now stand at 18% while the additional 25%, levied as penalty for India’s imports of Russian oil will not be applicable.

Interim Trade Deal

The framework of the interim trade deal between New Delhi and Washington, as mentioned in the joint statement released last week underlined India’s commitment to purchase of US$500 billion of American goods.  

“India intends to purchase $500 billion of US energy products, aircraft and aircraft parts, precious metals, technology products, and coking coal over the next five years,” the statement read. There is no mention of any reciprocal commitment from the US side.

Without going too much into the details, if we look at the overall architecture of the likely interim agreement, then I'm afraid it's an asymmetric package, Das added. 

The joint statement released also stated that India will eliminate or reduce tariffs on all US industrial goods along with a wide range of food and agricultural products, including dried distillers’ grains (DDGs), red sorghum for animal feed, tree nuts, fresh and processed fruit, soybean oil, wine and spirits, and additional products.

Imports of low price cheap goods like GM based maize, chicken legs, fruit and nuts will go up. More important will be imports of high price defence equipment like helicopters, fighter jets and submarines which will be used to police

— Arun Goyal, Trade Expert and Director, Academy of Business Studies

Indian exporters dealing in leather, gems and jewellery and marine products among other things may witness an increase in outbound shipment to the US.

India-US Trade Agreement

The India-US trade agreement has essentially provided a level-playing field to India, placing it more or less in line with its Asian peers, while providing a competitive edge to the country’s exporters.

However, there is little room for real celebrations. An 18% tariff on India essentially cannot be termed as a trade deal.

In the pre-Trump era, US tariffs, on average, stood at about 2%. The deal is more an indication of thawing of India-US ties which have been going southward. With rising uncertainities in the global trade and tariff regime, India needs to continue with aggressive diversification of markets.  And overall even with 18%, the domestic exporters will some reasons to cheer.