Communication channels open, says govt as 50% US trade tariff kicks in

In the meantime, describing the India-US relationship as "very complicated", US Treasury Secretary Scott Bessent, in a television interview, hoped that "at the end of the day, we will come together"

Communication channels remain open between India and the United States (US) as the two sides are looking to resolve the current challenges, a senior government official said on Wednesday, hours after Washington’s steep 50 per cent tariff on imports from India came into effect. 

The American side also held out hope. Describing the India-US relationship as “very complicated”, US Treasury Secretary Scott Bessent, in a television interview, said that “at the end of the day, we will come together”. He nevertheless asked the US’ European allies to “step up”. “I don't see them threatening the tariffs on the Indians. As a matter of fact, they're the ones buying the refined products made from Russian oil.” 

Back home in New Delhi, a senior government official characterised the tariff tensions between India and the US as a “temporary phase in a long-term relationship”.  On trade deal talks, the official said: “Communication channels are open. Both sides have concerns regarding how these things will play out, and both sides are looking at how to resolve these issues… Keeping those channels of communication open is important. There was a statement given by the leaders (Prime Minister Narendra Modi and US President Donald Trump) about the BTA (bilateral trade agreement). Work would still continue to be there.” 

Bessent told Fox Business. “This is a very complicated relationship. President (Donald) Trump or Prime Minister (Narendra) Modi have very good relationships at that level. And it’s not just over the Russian oil… India is the world's largest democracy and the US is the world’s largest economy. I think at the end of the day we will come together.” 

 

Talks for an interim trade deal hit pause with the US following geopolitical complexities, after Trump announced a 25 per cent punitive tariff in response to New Delhi’s Russian oil imports. Earlier this month, a 25 per cent reciprocal tariff -- on top of existing World Trade Organization-compatible duties -- on Indian goods kicked in.

 

Still, a trade deal between India and the US will depend on how each side addresses the red lines, the official said, reiterating New Delhi’s firm stand that India will continue to protect the interests of MSMEs, farmers and fishermen.

 

The US is India’s largest trade partner and export destination, accounting for a fifth of its outbound shipments in FY25.

 

Despite concerns from exporters and industry groups over the measure, government officials said the “impact is not as drastic or as exaggerated as that is being projected by the industry”. There is no need to “panic”, they argued, as Indian exports are not solely dependent on the US market and remain fairly diversified. While some sectors will be affected, there are “no large distress signals”.

 

The government estimates that as much as 55 per cent of India’s total merchandise exports to the US -- worth $47-48 billion 00 will be impacted. According to the commerce department’s initial analysis, demand will remain strong for electronics and pharmaceuticals exempted from the 50 per cet tariff. Similarly, demand for critical industrial products may be unchanged as supply chains cannot be shifted quickly. As a result, exports to the US are expected to remain at last financial year’s level.

 

The official said the government is carrying out a nuanced analysis of how consumer behaviour will shift with the change in price. It is also weighing suggestions from industry and will consolidate them to judge what is doable, and in what time frame. The government has been holding back-to-back meetings, taking feedback across sectors, monitoring challenges and how they can be addressed. 

For its part, the commerce department has adopted a multipronged strategy: Promoting exports through a new mission, diversifying markets and products, and working with the industry department to cut the cost of doing business, spur domestic demand and simplify the goods and services tax (GST). In the past fortnight, the government has also moved towards deeper deregulation.