India and US Start Talks on Revised Trade Agreement Amid Tariff Tensions

India and United States Begin Negotiations on Revised Bilateral Trade Agreement

The Government of India has commenced formal negotiations with the United States to revise the existing bilateral trade framework. This development follows the recent announcement by the US administration of a significant 25 percent tariff on Indian goods, coupled with additional penalties related to India’s procurement of defense equipment and energy supplies from Russia. The talks mark a critical juncture for both economies, with an emphasis on charting a trade partnership that is fair, balanced, and mutually beneficial while protecting India’s core economic and strategic interests.

Context of the Negotiations

On July 31, 2025, the United States government announced its decision to impose a 25 percent tariff on a range of Indian imports, effective August 1, 2025. The announcement also included the intention to levy an extra penalty for India’s ongoing purchases of Russian military equipment and energy resources.¹ This move came at a critical phase of the ongoing trade negotiations between India and the United States.

According to the Ministry of Commerce and Industry, Government of India:

India and the US have been engaged in negotiations on concluding a fair, balanced and mutually beneficial bilateral trade agreement over the last few months. We remain committed to that objective.³

The government has stressed the prioritization of national interests and the protection of key sectors such as local manufacturing, micro, small and medium enterprises (MSMEs), agriculture, and defense.¹

Government Response and Policy Emphasis

Following the US tariff announcement, the Indian government reiterated its position to safeguard domestic economic interests. The official communication clarified that while India remained open and committed to constructive engagement with the US, all necessary protective measures would be enacted to secure India’s welfare and national priorities.¹

The Government attaches the utmost importance to protecting and promoting the welfare of our farmers, entrepreneurs, and MSMEs.¹

The Government will take all steps necessary to secure our national interest, as has been the case with other trade agreements including the latest Comprehensive Economic and Trade Agreement with the UK.¹

Key Issues in Negotiation

The ongoing dialogue is structured around several critical issues, reflecting India's distinct economic realities and national priorities.

• Safeguarding Local Manufacturing: The government’s stance prioritises protection for Indian manufacturers from adverse external shocks. Negotiation teams are examining means to ensure that any market access given to US firms does not erode the competitiveness or growth prospects of India's manufacturing base.¹
• MSME Interests: MSMEs, which form the backbone of India’s employment and industrial ecosystem, are a primary concern. The government is seeking provisions that balance new opportunities in the US market with adequate safeguards against disruption from larger foreign corporations.¹
• Policy Autonomy in Sensitive Sectors: The Ministries of Commerce, Agriculture, and Defence have jointly outlined parameters to retain autonomy over policies governing sensitive areas such as food subsidies, strategic industries, and defense procurement. This is particularly relevant given the US’s stated concerns about India’s non-tariff barriers.¹
• Tariffs and Penalties: With the imposition of a 25 percent tariff and an unspecified penalty pertaining to Russian imports, India's negotiating position is focused on recalibrating tariff schedules to mitigate disadvantage in comparison to peer economies, notably China, which is itself negotiating with the US for tariff reductions and waivers.²

Implications of Recent US Tariff Actions

The recent tariff escalation by the US administration has altered India’s negotiating calculus. Economists note that the 25 percent tariff, combined with the risk of further penalties for imports from Russia, presents significant headwinds for India’s export-led growth strategies.²

Aditi Nayar, Chief Economist at ICRA, commented:

When the US had initially imposed tariffs, we had lowered our forecast of India's GDP expansion to 6.2% for FY2026, presuming a tepid rise in exports and a delay in private capex. The tariff (and penalty) now proposed by the US is higher than what we had anticipated, and is therefore likely to pose a headwind to India's GDP growth. The extent of the downside will depend on the size of the penalties imposed.²

The timing of the US announcement, arriving just ahead of India’s intended deadline for interim trade pacts, has pressed Indian negotiators to accelerate their efforts. Senior officials indicate that the outer limit for concluding an agreement, previously set for October, may need to be advanced.² Complicating matters, China is reported to be at an advanced stage of negotiations with the US, pursuing favorable tariff rates and potential exemptions for its own Russian imports.⁴

Administrative Approach and Mechanisms

The Indian negotiating team, led by the Ministry of Commerce and Industry, is coordinating closely with other ministries including External Affairs, Agriculture, Defence, and Finance to present a unified position. Multiple working groups have been formed to address discrete issues such as:

• Market access for Indian agricultural and industrial products.
• Facilitation of Indian service exports, especially IT and professional services.
• Technology transfer, digital trade norms, and data localization considerations.
• Customized provisions to foster MSME participation in bilateral trade.¹

India is also benchmarking its negotiation templates against recently concluded agreements such as the Comprehensive Economic and Trade Agreement with the UK.

Potential Impact on Sectors

The outcome of these talks carries significant implications for several sectors:

• Agriculture: Given the sensitivities around food security and residual subsidies, India will negotiate to preserve its rights under the World Trade Organization (WTO) framework. Proposals under discussion include continued tariff protection for certain staples, and phased opening of specific segments where Indian producers possess competitive advantage.¹
• Industrial Manufacturing: The government aims to secure forward linkages for Indian manufacturers, including in sectors such as textiles, chemicals, and engineering goods, while pressing for reciprocal access for Indian products facing non-tariff barriers in the US.¹
• Defence and Strategic Goods: India will press for carve-outs for defence procurement to maintain freedom of action in building supplier relationships, especially in light of ongoing US concern over India’s purchases from Russia.¹
• MSMEs: Provisions are being crafted to extend support mechanisms for MSMEs affected by tariff changes, including credit enhancement, technology upgradation funds, and preferential procurement in government-supported export projects.¹

Negotiation Timeline and Process

While no fixed deadline has been announced, officials note that India aims to expedite the talks in view of the new tariff regime taking effect from August 1, 2025. India's position is tempered by the requirement to avoid a protracted negotiation that could further erode its competitive position, especially relative to other large Asian economies.²

The negotiation architecture consists of high-level ministerial dialogues supported by technical consultations. Feedback is being actively solicited from key industry federations, export promotion bodies, and state governments to ensure consistency with national objectives.

In parallel, India has enhanced engagement with multilateral forums like the WTO and BRICS to coordinate on common issues arising from the evolving global trade environment.³

Stakeholder Consultations

The government has sought input from a wide range of stakeholders including:

• Farmer organizations and cooperatives, reflecting concerns over import competition and regulatory standards.
• MSME associations, with a focus on access to foreign markets and support for technological upgradation.
• Large industrial federations, including Confederation of Indian Industry (CII) and Federation of Indian Export Organisations (FIEO).
• State governments, which play a role in sector-specific implementation and compliance.¹

India’s Broader Trade Objectives

India’s approach to the bilateral trade negotiations with the US aligns with its wider trade strategy, which includes securing market access for its exporters in diverse geographies, while maintaining its commitment to fair and sustainable growth. The government remains cautious in providing concessions that might undermine its industrial base or policy flexibility.

India is also monitoring global trends closely, given similar trade tensions between the US and other large economies, including China. The contrast in the negotiation stages between India and China with respect to the US has introduced additional urgency to conclude a favorable deal.²

Current Status and Outlook

As of the current date, negotiations remain ongoing, with both sides signalling readiness to deepen engagement. The Government of India has reasserted its intent to secure a deal that preserves the interests of its farmers, entrepreneurs, and MSMEs, while ensuring the maximum possible autonomy in policy domains critical to national security and economic stability.³

While immediate relief from tariffs is the overarching objective, the government is equally focused on creating a framework that supports long-term export growth, job creation, and self-reliance. The coming weeks are likely to witness intensified dialogue among negotiators and substantive consultations with sectoral stakeholders, as India seeks to balance the exigencies of international trade dynamics with its domestic developmental priorities.

The government’s stated objective remains to achieve an early and effective resolution, minimizing exposure to adverse tariff regimes while maintaining a diversified strategy for international economic engagement.¹