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India-US trade: What’s the sticky point?
Citing non-monetary trade barriers and India’s energy & weapons trade with Russia, the US President has announced a tariff of 25%, plus an unspecified penalty, on Indian exports effective 1st August. Despite multiple rounds of talks with the US to strike a deal, “the red lines on agriculture and dairy imports have, it appears, proved too tough to surmount, at least for now.”
The Commerce Ministry statement mentions, “The Government attaches the utmost importance to protecting and promoting the welfare of our farmers, entrepreneurs, and MSMEs. The Government will take all steps necessary to secure our national interest”
India’s trade with Russia: A tightrope walk
Jefferies calls India’s trade ties with Russia ‘a tightrope walk.’ US announced a penalty over and above the 25% tariffs due to India importing 650 million barrels from Russia on an annualised basis. As per calculations, this is “giving India approximately $4 billion benefit due to the lower price.” Also, Russia accounts for 36% of India’s defence equipment imports, according to SIPRI. “India will need to negotiate a very fine balance here to avoid penalties,” they added
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How will tariffs impact India-US trade dynamics?
Latest reports indicate that Trump has said that US can still negotiate with India over a possible trade deal, here is a look at how India-US trade has panned out so far. India’s goods trade surplus with the US was $46 billion in 2024 (1.2% of GDP) with US being India’s top goods export destination (18% share).
“If India’s US trade surplus were to halve, it will have 25-40 bps of impact on the GDP,” Jefferies outlined. Also, they expect a similar impact on “CAD, combined with potentially higher Oil prices, can also drive further depreciation of the rupee and likely put a pause to any near-term rate cuts,” they added.