US and Indian trade negotiators are set to engage in two days of discussions starting Wednesday, aiming to strike a deal amidst geopolitical tensions after Washington imposed significant tariffs on New Delhi for its Russian oil purchases.
The US imposed 50% tariffs on most goods in August, arguing that discounted Russian crude imports finance Moscow’s war efforts in Ukraine.
Deputy US Trade Representative Rick Switzer’s visit follows a week after Prime Minister Narendra Modi welcomed Russian President Vladimir Putin in New Delhi.
India’s foreign ministry referred to Switzer’s meetings as a “familiarisation” trip.
India was among the first to initiate trade talks after President Donald Trump announced extensive tariffs in April on most US trade partners. Yet, it remains one of the few major economies without a deal, posing risks to jobs, economic growth, and markets.
What’s at Stake?
As the fastest-growing major economy, India faced a $45.8 billion goods trade deficit with the US in 2024.
Key export sectors like smartphones and generic drugs are exempt from Trump’s tariffs, but many labor-intensive industries are not.
This presents a significant challenge for a nation already striving to provide well-paid jobs for its youth, jeopardizing Modi’s goal to elevate the country to high-income status.
October saw exports drop nearly 12% year-on-year, driven by a decrease in US-bound shipments.
The Global Trade Research Initiative (GTRI) reported that labor-intensive sectors such as gems, jewelry, textiles, and seafood experienced export declines of 37-60% between May and September.
Foreign investors have withdrawn over $16 billion from Indian equities this year, contributing to the rupee’s decline to a record low past 90 per dollar.
The International Monetary Fund reduced India’s 2026-27 growth forecast from 6.4% to 6.2%, citing “prolonged 50% US tariffs” as a factor.
According to GTRI, exports could shrink to around $49.6 billion this fiscal year, down from $86.5 billion last year, potentially reducing growth by up to 80 basis points.
The Role of Russian Oil
Following the 2022 Ukraine invasion, India eagerly purchased discounted Russian crude as Moscow faced severe sanctions, including oil sales restrictions.
Trump’s move to link trade policy with geopolitics disrupted US-India relations in August, with half of the tariff burden resulting from Washington’s efforts to penalize these purchases.
The US president has claimed that India plans to stop, or has mostly stopped, buying Russian oil—a statement New Delhi hasn’t confirmed or denied.
During a visit to New Delhi, Putin proposed “continued uninterrupted fuel shipments.” Modi did not comment directly on oil imports.
However, Reliance Industries stated in November that it ceased importing Russian oil for its export-focused refinery, while smaller refiners like HPCL-Mittal Energy have completely stopped.
Trade intelligence platform Kpler’s analysts predict a “notable dip” in India’s December-January imports.
It remains uncertain if this decline will influence Washington.
Other Issues
Talks have also stalled over agriculture, with India resisting pressure to reduce tariffs on staples like rice and wheat, wary of upsetting its politically influential farmers.
An Indian commerce ministry official told AFP that these issues are “largely resolved,” although Trump criticized India on Monday for “dumping” rice in the US.
Negotiating a trade pact is complicated by the need to address Trump’s so-called reciprocal tariffs, though officials say both negotiations are interconnected.
“These are two separate, parallel negotiations that are going on, but one will feed into another,” Commerce Secretary Rajesh Agrawal stated at an industry event last week.
Is a Breakthrough Likely?
Relations have improved since August, with progress on several smaller deals.
This includes US approval in November for two arms sales worth nearly $93 million and New Delhi’s “significant” agreement for the US to supply nearly 10% of its liquefied petroleum gas (LPG) imports.
Energy commitments have historically anchored US trade deals, and experts suggest the LPG agreement may help demonstrate to Washington that India is reducing its reliance on Russia.
