India and the United States are exploring tariff reductions on key sectors as part of a proposed trade agreement aimed at significantly boosting bilateral trade. India is considering lowering tariffs on labor-intensive goods like gems and jewelry and textiles in exchange for the US reducing tariffs on its industrial goods exports to India. The current effective customs duty on Indian garment exports is 20% or a combination of tariffs.
Earlier this year, the two nations set an ambitious target – ‘Mission 500’ – to more than double bilateral trade to $500 billion by 2030. To achieve this, they plan to negotiate the first phase of a mutually beneficial, multi-sector Bilateral Trade Agreement (BTA) by Fall 2025. Bilateral trade between the two countries reached $82.53 billion between April and November of the current fiscal year.
Both sides have committed to increasing US industrial exports to India and Indian exports of labor-intensive manufactured products to the US. While both countries have agreed in principle to tariff cuts, the specifics of the agreement, including the sectors involved, are still under discussion. Details will be finalized once negotiating teams are in place.
India has already taken steps to rationalize customs duties in its recent budget, benefiting some American exports. These include lower duties on fish hydrolysate, synthetic flavoring essences, ground installation for satellites, and motorcycles based on engine capacity.
India's top exports to the US include engineering goods, followed by gems and jewelry, and ready-made garments. Key Indian imports from the US include crude oil, petroleum products, cut and polished diamonds, electric machinery, and aircraft parts. While increased agricultural trade is also a goal, discussions on tariff reductions in this sector have yet to begin.
These commitments were made during Prime Minister Modi's visit to the US earlier this year. Following meetings between leaders, both countries pledged to improve market access, reduce tariff and non-tariff barriers, and enhance supply chain integration. India also committed to increasing its purchases of petroleum products and liquified natural gas from the US. India currently ranks tenth among nations exporting to the US. The US is India's top export destination and fourth-largest source of imports.
