US Trade Deal Softening: Implications for India

UPSC Syllabus: Gs Paper 2- International Relation

Introduction

On 6 February 2026, India and the United States issued a Joint Statement outlining an Interim Trade Agreement. It removes the punitive 25% tariff on Indian goods, reduces reciprocal tariffs from 25% to 18%, and proposes a $500 billion purchase plan over five years. Soon after, the US revised its fact sheet, softening language on agriculture, purchases, and digital services taxes. These revisions highlight ongoing negotiations and raise important implications for India.

US–India Trade Background

1. Evolution and Emerging Tensions: Trade ties moved from post-independence aid to deeper strategic engagement. However, tensions resurfaced in 2018 with Section 232 steel and aluminium tariffs and the 2019 revocation of India’s Generalised System of Preferences status.
2. Reciprocal Tariff Framework: In April 2025, the US advanced a “reciprocal tariffs” approach to address trade deficits and higher duties faced by US exports. This increased pressure on Indian exports.
3. Launch of Bilateral Trade Negotiations: India and the US began talks for a Bilateral Trade Agreement in February 2025. The Interim Agreement, expected to be signed by March 2026, is positioned as a precursor to the full BTA.
4. Core Features of the Interim Deal: The framework removes the 25% punitive tariff and reduces reciprocal tariffs to 18%. It also proposes that India will purchase $500 billion worth of US goods over five years.

How Has the US Trade Deal Been Softened?

1. Removal of ‘Certain Pulses’: The earlier fact sheet included “certain pulses” among items for tariff reduction. The revised version deleted this reference, though pulses remain part of discussions.
2. Modified Agricultural List: The updated list includes industrial goods and items such as dried distillers’ grains, red sorghum, tree nuts, fruits, soybean oil, wine and spirits. Pulses are no longer mentioned.
3. Shift from ‘Committed’ to ‘Intends’: The original wording said India had “committed” to purchasing over $500 billion of US goods. The revised version states India “intends” to purchase, making the provision non-binding.
4. Clarification on Purchases: Officials clarified that purchases will be made by private companies, not sovereign governments. Therefore, the amount is not legally enforceable.
5. Deletion of Digital Services Tax Removal: The earlier claim that India would remove digital services taxes was removed. The revised version only refers to negotiating bilateral digital trade rules.
6. Alignment with Joint Statement: The Joint Statement did not mention pulses or digital tax removal. The revision ensures consistency with the agreed text.

Significance of the Softening

1. Agriculture as a Politically Sensitive Sector: Agriculture affects livelihoods and electoral politics. Even small tariff concessions can trigger strong reactions.
2. Central Role of Pulses: India is the world’s largest producer and consumer of pulses. It imports about one-fifth of annual consumption to meet domestic demand.
3. Import Data Context: In the first nine months of 2025-26, pulses imports were $2.53 billion, down 33%. In 2024-25, total imports reached $5.48 billion, with the US contributing only $90 million.
4. Farmers’ Protests and Concerns: The Samyukta Kisan Morcha announced a nationwide strike. The Rashtriya Kisan Mahasangh criticised secrecy and raised concerns over imports and GM-linked DDGs.
5. Legal Weight of Language Change: Replacing “committed” with “intends” reduces obligation. It prevents measurable accountability at this stage.
6. Digital Trade Sensitivities: India had already removed the equalisation levy. There were concerns about limiting future regulatory space.

Implications for India

1. Protection of Domestic Agriculture: Removing pulses from the tariff list reduces immediate pressure on farmers. It avoids visible concessions in a sensitive sector.
2. Preservation of Policy Autonomy: The change in wording protects India from binding purchase targets. It allows procurement decisions to depend on demand and pricing.
3. Managing Import Concerns: Farmers feared that a surge in imports could affect domestic prices. Softer language lowers the perception of sudden market disruption.
4. Digital Regulatory Space: The deletion of explicit tax removal avoids framing policy changes as concessions. It keeps space open for future decisions on taxation and data governance.
5. Strengthened Negotiation Position: The revisions show that India defended key sensitivities. This may shape future discussions in the full Bilateral Trade Agreement.
6. Controlled De-escalation of Trade Tensions: The Interim Agreement removes the 25% punitive tariff and reduces reciprocal duties. The softening ensures that de-escalation does not come at the cost of rigid commitments.

Conclusion

The softening of the US fact sheet reflects calibrated negotiation rather than retreat. Sensitive sectors such as agriculture, large-scale purchases, and digital regulation remain carefully guarded. The shift from firm commitments to flexible intentions preserves India’s policy space. The Interim Agreement acts as a transitional step toward a comprehensive Bilateral Trade Agreement, with negotiations still evolving.

Question for practice:

Examine how the recent softening of the US fact sheet on the Interim Trade Agreement reflects India’s stance on agriculture, purchase commitments, and digital trade regulation.
Source: India Express