India and the United States are “very close” to the first tranche of a bilateral trade agreement (BTA) with broad convergence reached on most issues, a senior official said on Friday, adding that the two sides have begun drafting the language of the pact.
The official, speaking on condition of anonymity, added that the negotiators were about to find some common ground on “pending issues’, without elaborating what these were. “We don’t see any new issue arising now.., We are discussing non-tariff barriers,” the official said, hinting that the key sticking point of tariffs has been resolved.
The official, however, hastened to add that “no deal is finalised a yet, as this is done at a much higher political level.”
He said it was possible that a US team might visit India soon, but did not specify whether this was for the announcement of the deal.
The comments came in the backdrop of stringent sanctions imposed by the US Treasury Department on Russian two biggest oil companies — Rosneft and Lukoil – a move that will necessitate Indian companies, chiefly Reliance Industries (RIL), which account for half of India’s oil imports from the Eurasian country, to cut back on these purchases, with long-term contacts with these firms now out of bounds for them.
“Reliance will be fully aligned to GOI (Government of India) guidelines,” a Reliance spokesman had said on Thursday, after the sanctions were announced.
US president Donand Trump has been putting relentless pressure on India to stop buying oil from Russia. After speaking to Prime Minister Narendra Modi earlier this week, he said the talk was chiefly about trade and repeated his earlier claim that Modi had assured him India would limit its oil purchases from Russia. Though curtailing cheaper Russian oil is not fiscally or commercially gainful for New India, and goes against the refrain that the country would buy oil from whichever source cheaper, the latest US sanctions make it almost inevitable, given the sanctions include the prospect of criminal penalties.
Political considerations, including the Bihar elections, might weigh on the decision and the timing of its announcement.
A trade deal with Washington will be a shot in the arm for India, as it will supersede the near-prohibitive 50% tariff (half of it for buying Russian oil) on most of its goods in the US, with additional “reciprocal” duties in the 15-20% range, as applicable to most Asian countries.
Indian exporters, especially labour-intensive ones textiles & clothing, gems & jewellery, seafood, leather, and engineering goods, have already started losing access to the world’s largest economy due to large trade barriers.
Five rounds of talks have been completed for the first phase of the BTA. A team of Indian officials, headed by Commerce Secretary Rajesh Agrawal, was in Washington last week to hold trade talks with their US counterparts. The three-day talks ended on October 17.
The Indian official’s comments echoed commerce and industry minister Piyush Goyal’s statement in Berlin Thursday evening that India and the US hoped to enter into a “fair and equitable” trade agreement in “the near future.” On Friday at Berlin Global Dialogue, the minister said no trade agreements would be signed under pressure of deadlines or to deal with short-term challenges without elaborating.
On Friday, Goyal, however, repeated that no agreements will be signed under pressure. “We have accepted if there is a tariff on us there is a tariff on us. We are looking at how to overcome that,” Goyal said at the Berlin conference. “India has never decided who its friends will be based on any other consideration other than national interest. If somebody tells me tomorrow you cannot be friends with the EU, I would not accept that,” he said, in what could be seen as tacit reference to Washington’s insistence on India stopping Russia oil purchases.
After the latest US sanctions on the two Russian firms, oil prices hardened, with Brent rising 5% on Thursday to $65.99 a barrel. In Friday’s trading session, it edged up to $ 66.12 a barrel.
“The decision whether to buy a particular product from a country is something that the entire world will have to take a call on,” the minister said. This is in line with India’s stand that it would only act if sanctions come through the decision of global bodies like the UN and not individual countries,” Goyal said.
There is a view in some sections of exporters that a trade deal with the US should be signed at the earliest to minimise the damage due to 50% additional tariffs.
The two energy giants (Rosneft and Lukoil) together account for about 57% of Russia’s oil output and export earnings. The remaining 43%, produced by other firms, technically remains unsanctioned. In theory, global buyers could keep purchasing from these non-sanctioned entities without violating US restrictions,” Founder of Global Trade Research Initiative (GTRI) Ajay Srivastava said.
Following the sanctions announcement, Reliance Industries, which was the biggest buyer of Russian oil in India, told Reuters that “Recalibration of Russian oil imports is ongoing and Reliance will be fully aligned to GOI (Government of India) guidelines.” The state-run refiners do not buy Russian oil directly but through traders.
The expected reduction of Russian oil purchases after the latest set of sanctions would help address the US demand that India should stop buying crude oil from Russia, creating conditions for removal of 25% oil-related tariffs. Other negotiations can address the issue of 25% reciprocal tariffs, analysts said.
The US imposed tariffs on India even as both sides were already negotiating the BTA. Talks on the trade deal were revived after a three-week hiatus in September caused by the 25% oil-related tariff. Now both sides are following a different track that involves a close circle of officials and ministers and not delegations. The deadline for the interim BTA was November.
Corn and soybeans have figured prominently in the bilateral negotiations, with the US wanting to have easier access to the Indian market for these farm goods. India has been reluctant to allow market access for grains and dairy products from the US, as it fears that this would hit the livelihoods of small farmers. It might, however, relax corn and soymeal imports, analysts feel.