In light of the interim India-US trade agreement framework, a recent report highlights the importance of India focusing on trade openness and reforms to enhance long-term competitiveness. The report suggests key priorities such as correcting inverted duty structures, optimizing logistics and customs processes to reduce input costs, promoting assembly-based manufacturing for scalability and employment, and decreasing protectionism while expanding Free Trade Agreements (FTAs). Additionally, it emphasizes the need for increased investment in Research and Development (R&D) and addressing land, labor, and skills constraints.
The report advocates for an integrated approach that involves disciplining firms through advanced manufacturing and integrating India more deeply into Global Value Chains (GVCs). This strategy is seen as a way to boost India’s manufacturing share and global position, thereby mitigating potential risks associated with trade agreements and enhancing long-term competitiveness. The findings underscore the significance of these measures in navigating challenges like those posed by the policies of former U.S. President Donald Trump.
Under the US-India trade deal, India stands to benefit from tariff relief and expanded market access, but it is also obligated to a $500 billion import commitment and an oil ban. The agreement, signed on February 7, 2026, underscores the importance of reciprocal market access, with India agreeing to reduce or eliminate tariffs on various US goods, including industrial products, food items, and agricultural produce like Distillers Dried Grains with Solubles (DDGS), red sorghum, tree nuts, fruits, soybean oil, wine, and spirits. In return, the US plans to impose an 18% reciprocal tariff on specific Indian goods such as textiles, apparel, leather products, plastics, chemicals, and machinery, with the intention of eventually removing tariffs on items like generic pharmaceuticals, gems, diamonds, and aircraft parts upon successful interim implementation.
The trade agreement aims to achieve a balance in trade relations while addressing American concerns regarding market access barriers. From India’s perspective, the deal offers tariff relief, lowering effective US duties on Indian exports to 18%, which is below rates applied to competitors. The Indian Trade Minister has expressed optimism that this reduction will benefit labor-intensive sectors and initiatives like Make in India and Atmanirbhar Bharat. Furthermore, the agreement ensures the elimination of national-security tariffs on Indian aircraft and parts, along with providing a preferential quota for automotive components, thereby supporting growth in the aviation and manufacturing sectors.
