 "TRADE")
On February 13, Prime Minister Narendra Modi and United States President Donald Trump agreed to launch negotiations for a bilateral trade agreement (BTA). A BTA is essentially a free trade agreement (FTA) under a different name, similar to India’s Comprehensive Economic Partnership Agreement (CEPA) with Japan and its Economic Cooperation and Trade Agreement (ECTA) with Australia. For simplicity, we will refer to it as an FTA from here on.
US Vice-President J D Vance and Prime Minister Modi announced the finalisation of the terms of reference (ToRs) for the FTA on April 21. The ToRs set the ambition levels for the agreement. For instance, in the India-European Union FTA, the ToRs state that tariffs on goods covering 90 per cent of trade value may be eliminated.
While the official ToRs for the US FTA are not public, we can make an educated guess. Since the US does not have a Fast Track Authority, it cannot easily cut tariffs. This means that even after the FTA is signed, Indian exports to the US may still face current import duties and a base 10 per cent tariff on most products. In contrast, the US could push India to remove tariffs on agricultural products and automobiles, and may also seek to limit Chinese inputs in Indian exports. The US may demand more concessions from India in tariff and domestic policy space without offering much in return.
US dominates the perception battle
The US has succeeded in painting India’s tariffs and rules as the reason for its trade deficit, hence demanding that India buy more American goods, oil, and weapons, and dilute regulations restricting India business of Google, Meta, Amazon, Walmart, Tesla, and other US firms.
The reality is that India pays more dollars to the US than it gets back, and the overall economic balance favours America. The picture changes completely when you include US arms sales to India, profits and royalties earned by American banks and companies, and the free access US tech giants enjoy in India.
For every iPhone sold at around $1,000 in the US, Apple earns over $450, while India’s share is less than $25. Yet, in trade data, the full value is counted as an export from India, adding to the US trade deficit. Instead of challenging the US narrative, Indian officials urge companies to cut imports from China and buy more from the US.
Since January, India has cut import duties on bourbon whiskey, fish feed, motorcycles, satellite parts, and mobile phone components. It also removed a 6 per cent digital tax on revenue from Indian users, helping Google, Meta, and Amazon. India is working to change its nuclear liability law to let US companies supply nuclear equipment without legal risk. It may also soon approve Elon Musk’s Starlink to offer satellite internet through local partners like Reliance Jio and Bharti Airtel.
India’s unilateral concessions and silence have allowed Washington to dominate the perception battle. This helps them seek more concessions from India in the FTA negotiations.
What the US wants
The US wants India to go beyond just cutting tariffs. In agriculture, it is pushing for reforms to India’s minimum support price (MSP) system for rice and wheat, a dilution of the public stockholding programme, permission for imports of genetically modified (GM) foods, and lower tariffs on farm products.
In pharmaceuticals, it wants India to permit “evergreening,” or endless patent extensions for drugs, without needing to prove any added benefit. It demands that Amazon and Walmart be allowed to sell directly to Indian consumers through their platforms. The US seeks relaxation of rules on used capital goods and remanufactured products and wants the ban on ethanol imports for fuel use lifted. It further objects to India’s “Make in India” procurement rules, which reserve public contracts under ₹250 crore for domestic companies and require up to 50 per cent local content. Thus, the US seeks significant changes to India’s domestic policies. The US National Trade Estimates Report 2025 outlines hundreds of demands directed at India. The US will press India on these during the FTA negotiations.
India’s negotiating best bet
India should limit the scope of the FTA to merchandise trade. Unlike other countries that mainly face pressure to cut tariffs, India would be pushed to change its domestic policies significantly under a full FTA. The deal could threaten India’s food security, public health, small businesses, and digital independence. With Mr Trump under pressure at home and abroad, India committing to a comprehensive FTA now would be risky.
Instead, India could propose a limited “zero-for-zero” goods-only FTA with the US — offering to eliminate tariffs on 90 per cent of industrial goods on a reciprocal basis while keeping sensitive sectors like agriculture and automobiles out. This would allow 90 per cent of US exports to enter India duty-free, addressing Mr Trump’s complaints about high Indian tariffs. A “zero-for-zero” approach would be safer for India, as it already provides similar zero-duty access to Asean, Japan, and South Korea under existing FTAs, so Indian industry is used to such competition. Even the EU has suggested a similar industrial goods pact with the US. Such a deal would protect India from pressure to change domestic policies, keeping the agreement focused strictly on tariffs and trade.
How real is the $500 billion trade number?
After meeting President Trump on February 13, Prime Minister Modi stated that India and the US aim to double their trade to $500 billion by 2030. When the two sides finalised the ToRs for the FTA on April 21, Indian newspapers declared it a significant step towards this $500 billion target.
But the truth is that this $500 billion number has been floating around for over a decade. The Indian side mentioned it during Mr Modi’s first visit to the US as Prime Minister in 2014. The Economic Survey of 2015–16 also spoke of India achieving over $500 billion in exports by joining the US-led Trans-Pacific Partnership FTA. In reality, $500 billion is just a nice, round number with no apparent meaning.
India must tread carefully. Committing to a sweeping FTA under the current uncertain global conditions could undermine key national interests. A limited, industrial goods-only pact would be a far safer and smarter move.
The writer is founder, Global Trade Research Initiative
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
