Caution, not celebration: India-US trade deal still short on clarity
Feb 3, 2026
Synopsis
Exporters welcome sharp tariff reduction, flag capacity build-up and clarity on product-wise duties
US President Donald Trump on February 2 announced a landmark trade deal with India following a call with Prime Minister Narendra Modi, cutting reciprocal tariffs on Indian goods to 18%.
In return, India has committed to eliminating tariffs and non-tariff barriers on select US products, halting purchases of Russian oil, and stepping up imports from the US across energy, technology, agriculture, and coal, with cumulative purchases projected at over $500 billion over time, Trump said in his social media post.
Although the details of the agreement are not known yet, industry stakeholders believe the sharp reduction in US tariffs—from levels that had earlier gone as high as 50%—could provide a strong boost to Indian exports, particularly in labour-intensive sectors, such as textiles, leather, engineering goods, pharmaceuticals, and IT services. Several industry bodies estimate that the move could potentially lift bilateral trade by $100-150 billion annually over the medium term, while supporting employment generation in export hubs dominated by micro, small, and medium enterprises (MSMEs).
Industry Reaction
Calling the announcement encouraging but cautioning against premature celebration, Anil Bharadwaj, Secretary General, Federation of Indian Micro and Small & Medium Enterprises (FISME), said, “The India-US deal is great news. President Trump’s announcement of a tariff cut from 25% to 18%—later clarified by US authorities as a reduction from 50% to 18%—is certainly positive. However, details are awaited. The cuts are not across the board but are average reductions, and it remains to be seen how much relief each product actually gets. It is also not clear whether the 18% duty is an absolute tariff or is over and above the MFN tariff.”
Rajata Mehra, Convenor, CII Policy Advocacy Panel and Director, Rajat Chemicals Industry, said the agreement offers India a competitive edge despite tariffs remaining above the base level. “The Indian government has finally succeeded in bringing down reciprocal tariffs to 18%. While this is still around 8 percentage points above the base MFN tariff of 10%, given the prolonged standoff, it is a relief. Importantly, the rate is about 1% lower than that faced by competing neighbours, such as Pakistan and Bangladesh, which should provide a fair edge to labour-intensive textile and leather sectors,” he said.
Textile exporters across the country are particularly upbeat about the deal since a sizeable share of exports go to the US. Sanjay K Jain, Chairman, ICC National Textile Committee and Managing Director, TT Textiles, said, “The EU deal was being called the mother of all trade deals, but this US deal is the grandmother of all deals—and more importantly, it is effective immediately.”
He added that reducing the peak tariff from 50% to 18% places India in a far stronger position than regional competitors. “Indian apparel and home textile exports are entering a golden phase. We could see high double-digit growth, or even over 20% growth in garment exports, provided we build capacity over the next five to six years. Current capacities will not be sufficient to fully capitalise on this opportunity,” Jain said. He pointed out that India’s special geopolitical standing, which allows it to trade with Russia, the EU, the UK, the US, the Middle East, and Oceania, makes it more desirable as a global sourcing hub.
Divya Kumar Gulati, Chairman, The compound Livestock Feed Manufactures Association (CLFMA), said the deal, coming soon after India’s trade pact with the European Union, reinforces India’s growing integration into global trade networks and sends a strong confidence signal to export-oriented agri and animal-protein industries. "For the seafood and shrimp sector, where the US remains India’s single largest export destination, the tariff reduction materially improves price competitiveness against key rivals such as Vietnam and Indonesia. Shrimp exports, especially Vannamei, had faced volume pressure under elevated duties; the revised tariff regime helps correct this cost disadvantage and can support demand revival, volume stabilisation, and improved margin visibility for exporters. Additionally, the reduction in tariffs on high-protein feed additives (soy based and fish meal alternatives) imported from the US lowers production costs for Indian shrimp farmers, directly strengthening farm-level economics and long-term supply sustainability. If the agreement progresses toward a broader, near zero-tariff framework over time, it could unlock sustained growth opportunities for India’s animal protein exports while encouraging investments in value addition, efficiency, and global market expansion."
Engineering exporters, MSMEs to benefit
According to Pankaj Chadha, Chairman of the engineering exporters’ apex industry body, EEPC India, the tariff reduction would help Indian engineering exports regain competitiveness in their largest export market. “The trade deal will help Indian engineering goods regain competitiveness in the US market. Many US buyers who had slowed or cut orders due to high tariffs will now find Indian products affordable again,” he said.
According to EEPC India’s data, despite elevated tariffs, engineering exports to the US stood at $14.68 billion during April-December 2025-26, registering around 5% growth. “With the new tariff cut, we expect growth to accelerate further. Products such as machinery, pumps, compressors, electrical equipment, auto components, industrial valves, boilers, and steel and aluminium items will gain a clear advantage,” Chadha said.
He added that MSME exporters, who were among the worst hit by the earlier steep duties, stand to benefit significantly. While Section 232 duties on steel, aluminium, automobiles, and some auto components remain in place, industry hopes the broader agreement could eventually pave the way for easing these restrictions as well.
Overall, EEPC India expects stronger export growth in FY26 and beyond, supporting India’s ambition to cross $120 billion in engineering exports in 2025-26 and move towards the government’s longer-term target of $250 billion by 2030.
Government's view
The government described the deal as timely and strategic, reinforcing confidence among businesses and investors on both sides. Praveen Khandelwal, Secretary General, Confederation of All India Traders (CAIT), said the agreement would significantly benefit MSMEs. “The India-US agreement will enhance bilateral trade, attract greater investment, and create large-scale employment, particularly for MSMEs, start-ups, and manufacturing. It complements Make in India, Atmanirbhar Bharat, and Vocal for Local by improving access for Indian products to the US market while strengthening domestic value chains,” Khandelwal said.
He said key beneficiaries include manufacturing, electronics, defence, pharmaceuticals, textiles and apparel, gems and jewellery, agri-products, renewable energy, and digital services.
Echoing similar views, BJP National Spokesperson on Economic Affairs, Gopal Krishna Agarwal, said the deal reinforces India’s growing stature in global trade. “Coming after the EU trade deal, this shows the world’s optimism about India. It is a major boost to Make in India, especially for MSMEs and labour-intensive sectors such as marine products and textiles. “Budget 2026 focuses on strengthening manufacturing, and this deal will accelerate growth, investment, and job creation,” he said.
Unanswered questions
Despite the optimism, experts caution that several aspects of the deal remain unclear. Trump announced the agreement on Truth Social, stating that US tariffs would be reduced to 18%, but the post initially led to confusion over whether the cut was from 25% or 50%. The US later clarified that tariffs are indeed being reduced from 50% to 18%.
Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), pointed out that the US has offered varying reciprocal tariffs to other partners in recent deals—10% to the UK, 15% to the EU and Japan, 19% to Indonesia and Malaysia, and 20% to Bangladesh and Vietnam—mostly over and above MFN tariffs. “Even after the deal, Section 232 tariffs on steel, aluminium and some auto components will continue. Zero tariffs already applicable to pharmaceuticals, aircraft, and certain mechanical and electronic components will remain unchanged,” Srivastava said.
He also flagged ambiguity around India’s commitments. “Trump claims India will reduce tariffs and non-tariff barriers to zero on US products, but it is unclear how many products are covered. Sensitive sectors such as food grains and regulated imports have traditionally remained protected. The headline figure of $500 billion in US purchases appears to be a long-term aspiration rather than a near-term commitment, given that India currently imports under $50 billion annually from the US,” he said.
“Until there is a joint statement, negotiated text and clarity on timelines and enforcement, this should be seen as a political signal rather than a final, binding deal. "Caution—not celebration—is warranted,” Srivastava added.
[The Economic Times]
