India-US trade deal slashes tariffs, lifts exports and markets

NEW DELHI, Feb 3 (Reuters) – U.S. President Donald Trump on Monday announced a trade deal with India that slashes U.S. tariffs on Indian goods to 18% from 50% in exchange for India halting Russian oil purchases and lowering trade barriers.

Trump said the deal involved higher Indian purchases of U.S. energy, coal, technology and farm products, and is the first phase of a broader pact to be negotiated later.

India will increase purchases of U.S. petroleum, defence equipment, electronics, pharmaceuticals, telecom products and aircraft with some farm market access also offered. Buying commitments will be spread over several years.

Although Trump said India would cut tariffs to zero, it is not yet clear which products will see zero duties or phased cuts, as in India’s EU and UK trade deals.

In 2024, America’s agricultural trade deficit with India was $1.3 billion.

Exporters say the cut in U.S. tariffs to 18% will significantly boost Indian exports including textiles and apparel, pharmaceuticals, chemicals, footwear, jewellery, and food items like shrimp, putting them on par with Asian peers such as Vietnam and Bangladesh.

Indian refiners have been reducing Russia oil purchases and diversifying supplies toward the U.S., Middle East, Africa and South America. However, refiners will need a wind-down period to exit existing Russian contracts, and the government has not yet ordered a full halt, refinery sources said.

After the U.S. tariff hike in late August, sectors such as textiles, jewellery and shrimp were hit, though discounts helped exporters retain buyers.

Still, exports to the U.S. in January–November period rose 15.9% year-on-year to $85.5 billion, while imports reached $46.1 billion, government data showed.

Two-way goods and services trade reached $212.3 billion in 2024, with a $45.8 billion U.S. goods trade deficit and a small services trade surplus, according to US government estimates.

Analysts said although reciprocal tariffs may be lowered under the framework, U.S. Section 232 duties on steel, aluminium, copper, automobiles, auto parts and some other goods are likely to stay.

Engineering goods exports to the U.S. rose about 5% year-on-year to $14.68 billion in the first nine months of 2025/26, industry estimates show.

As a result, an estimated portion of India’s exports to the U.S. will continue to face higher tariffs despite the trade deal.

The deal announcement boosted investor sentiment, with rupee against dollar rising over 1% on Tuesday, the benchmark stock index, the Nifty 50 gaining about 3% after jumping as much as 5%, and the 10-year bond yield felling around 5 basis points.

Analysts said the pact could support exports, capital inflows and the rupee, though a full halt to Russian oil purchases may take time to implement.