After the trade deal: Exporters will benefit if New Delhi stays active

The India-US interim trade framework signals a thaw in ties, tariff relief for exporters, protected farm interests, and a renewed push for reforms to make trade gains sustainable

The India-United States (US) joint statement, which unveiled a framework for an interim trade agreement, might be the signal for a significant thaw in ties between the two nations. How swiftly it results in implementation is not certain, but it is hoped that some relief for exporters, battered by the cumulative 50 per cent tariffs imposed by US President Donald Trump some months ago, will arrive in a timely fashion. While the 25 per cent surcharge, slapped on India for buying Russian oil, was not specifically mentioned in the statement, it is widely assumed that this will be removed; Mr Trump, in his original post on the subject, claimed that India had “agreed to stop buying Russian oil, and to buy much more from the US and, potentially, Venezuela”. The remaining 25 per cent will now be reduced to 18 per cent, which is competitive vis-a-vis many of India’s Asian peers. 

Further, India has ensured that certain lines of agricultural goods remain protected. Some farm goods from the US — fruit, soybean oil, and nuts among them — will be allowed into Indian markets now. But major domestic products, including rice, wheat, poultry, and dairy, will remain protected. Meanwhile, major industrial goods will apparently face sharply reduced tariffs, though it remains to be seen which are zero-rated and what the glide path is for the others. Either way, this is a win for Indian consumers, who in a short while have seen important sectors freed up to trade from both the European Union and the US. India has also promised to buy $500 billion worth of goods from America. Major commitments to buy aircraft from Boeing will comprise a reasonable chunk of that; and if increased purchases of fossil fuels do indeed materialise, that too will help. There have long been plans to diversify imports of coking coal away from Australia, and the US is a possible alternative. Finally, if major investment in data centres fructifies — perhaps incentivised somewhat by the tax holiday announced in the recent Union Budget — shipments of the graphics-processing units, or GPUs, which are the backbone of such installations, could be a major chunk of this $500 billion commitment. 

The past weeks have marked a major turning point for an India that has been leery of new trade pacts since 2014. Previous free-trade agreements fell into political disfavour because some in New Delhi believed that exporters did not gain enough from them. In order to ensure that things are different this time, the government must pick up the pace of internal reforms. Some of this is implied in the joint statement’s section on regulatory alignments. But more will be needed, particularly in the realm of basic factor-market reform. The government must also escape the mindset that market access alone will lead to export growth. It is vital that new systems be created to allow small and medium enterprises to properly understand and navigate new opportunities, as well as the unfamiliar regulations in these export markets. Logistics costs need to be reduced, and power reforms deepened. Modern supply chains don’t work one way. Inputs from elsewhere in Asia have to be accessed cheaply and reliably for exports to the West to grow. Entry into trade pacts such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership must be given fresh consideration.