India has secured a sharp reduction in tariffs and a complete rollback of oil-related duties under an interim trade deal with the US, in return for opening up parts of its market to American goods and committing to purchase $500 billion worth of US products over the next five years.
The deal, announced earlier this week and formalised through an executive order issued by US President Donald Trump, eliminates the additional 25% tariff imposed on Indian goods over New Delhi’s purchases of Russian oil and lowers so-called reciprocal duties on Indian exports to 18% from 25%. Indian products had effectively faced tariffs of up to 50% since late last summer, the highest levied on any major Asian trading partner.
Oil Pivot
The rollback of the 25% oil-related tariff comes after India committed to stop directly or indirectly importing Russian oil and indicated that it would instead source energy products from the US, according to Trump’s executive order. The order also warned that the oil duties could be reimposed if the US determines that India has resumed purchases of Russian crude, directly or indirectly. The elimination of the oil tariff takes effect from 12:01 am Washington time on February 7, while the reduction in reciprocal tariffs to 18% will follow shortly after a separate executive order.
Commerce and industry minister Piyush Goyal said the relief on oil duties would be immediate, while the reciprocal tariff cut may take a few more days to be notified. “The 25% oil duties will be reduced immediately as the executive order has come. The reciprocal duties will be brought down to 18% after a separate order,” he said.
A formal agreement is now being drafted and is expected to take about a month. Once it is signed, India will begin phasing down duties on imports from the US. In a joint statement, Washington also said it would take into consideration India’s request for further tariff reductions during negotiations on a full-fledged US-India Bilateral Trade Agreement (BTA), talks for which began last February.
$500 Billion Blueprint
To meet the $500-billion purchase commitment, India will import a wide basket of American goods over five years, including energy products, aircraft and aircraft parts, precious metals, technology products, and coking coal. Both sides also agreed to significantly expand trade in technology products, including graphics processing units (GPUs) and other equipment used in data centres, and to deepen joint technology cooperation. Goyal described this as a major gain for India, given US export controls on high-performance computing chips used in artificial intelligence.
In agriculture, Goyal stressed that no concessions have been extended to sensitive agricultural segments including grains, fruits and vegetables, spices, oilseeds, dairy, poultry and meat, even as India secured preferential access for its own exports. However, India has agreed to reduce duties on a range of US products such as dried distillers’ grains (DDGs), red sorghum (jowar) for animal feed, tree nuts, fresh and processed fruits, soybean oil, wine and spirits, and select other items. DDGs are a nutrient-rich byproduct of ethanol production widely used as livestock feed.
On the industrial side, India will reduce or eliminate duties on several US goods. Import tariffs on Harley-Davidson motorcycles will be cut to zero immediately, while duty reductions on automobiles will be limited to diesel cars with engine capacity above 2,500 cc and petrol cars above 3,000 cc.
In return, Indian exports in labour-intensive sectors such as textiles and apparel, leather and footwear, plastics and rubber, organic chemicals, certain machinery, home décor and artisanal products will now face an additional duty of 18% in the US market instead of 50%. The higher tariffs had come into effect at the end of August, putting Indian exports under sustained pressure. The lower rate now gives India a competitive edge over exporters from Vietnam, Malaysia and Bangladesh.
Beyond these sectors, the US has agreed to remove reciprocal tariffs on a separate list of goods subject to additional negotiations, including generic pharmaceuticals, gems and diamonds, and aircraft parts, contingent on the successful conclusion of the interim BTA. Some relief on aircraft parts will also come through a review of tariffs imposed under Section 232 of US national security law covering aluminium, steel and copper. India will also receive preferential tariff-rate quotas for automotive parts, while negotiated outcomes have been promised for generic pharmaceuticals and their ingredients.
India has additionally agreed to address a set of long-standing non-tariff barriers, including easing restrictions on US medical devices, eliminating import licensing procedures that delay or limit market access for US information and communication technology goods, and examining whether US-developed or international standards can be accepted for American exports in identified sectors.
From the US perspective, Trade Representative Jamieson Greer said the deal would require further work from New Delhi to fully dismantle trade barriers, but described it as a major opening for American producers. “President Trump’s dealmaking is unlocking one of the largest economies in the world for American workers and producers, lowering tariffs for all US industrial goods and a wide array of agricultural products,” he said.
India’s purchases of Russian oil had been a key sticking point in negotiations, and while New Delhi has not publicly confirmed the commitment outlined in Trump’s executive order, the US directives are expected to ease tensions as both sides move to implement the agreement announced after Trump’s recent phone call with Prime Minister Narendra Modi.
The interim deal also comes against the backdrop of India’s recent free trade agreement with the European Union, underlining New Delhi’s broader push to secure market access and cushion its economy against rising global protectionism.