The India–US trade deal is entering its first decisive phase with tariff reductions expected soon. The bilateral trade agreement between the US and India will be formalized within 4-5 days when both sides release an official Joint Statement signaling that, as well, an Executive Order from the US reducing tariffs on imported Indian goods to 18% will take effect soon after. In addition, concerned parties expect to be able to sign an agreement sometime in March 2019.
The comment was made by Mr. Goyal with respect to signing the Terms of Reference doc as part of the US-India free trade agreement negotiations. Mr. Goyal went on to explain that India’s economic relationship with the US continues to grow at a very rapid pace; specifically, that the total of India’s current and future purchase orders for US-made aircraft, engines, and engine components will surpass $100 billion. This means there are both immediate commercial benefits and a significant strategic advantage to this trade agreement for India.
Tariff Cuts Follow Different Legal Paths
Nevertheless, India and the U.S. are on different legal paths with regard to tariffs. Goyal mentioned that the U.S. could reduce tariffs through executive orders; however, for India, this can only occur upon being enacted by a signed legal agreement. Rajesh Agrawal, Secretary of Commerce for India, added that MFN or most-favoured-nation status would also require ratification by both parties in order for India to reduce tariff rates.
For this reason, over the last 12 months, negotiators from each side have worked at multiple levels to come to terms on these matters. Within their negotiations, India has sought to protect its agriculture and dairy sectors while also addressing those same sectors of mutual U.S. interest. Based on these negotiations, both India and the U.S. are nearing completion on several areas of agreement.
India–US Trade Deal Targets $500 Billion by 2030
Under the current bilateral trade agreement between India and the United States, India aims to increase its bilateral trade volume with the US from an estimated USD 191 billion now to USD 500 billion by 2030. Mr. Goyal also stated that India’s economic growth will require large quantities of imports for energy, data centers/equipment, ICT goods, and aircraft, while at the same time, the total amount of goods imported into India from the USD is expected to be at least USD 500 billion over the period of 5 years.
Mr. Agrawal noted that the total amount spent on imports of the above goods currently exceeds USD 300 billion per year and that total purchases may exceed USD 2 trillion in the next 5 years. Therefore, purchasing USD 500 billion in imports from the US over the next 5 years also supports India’s strategy of diversifying its sourcing of imports.
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