India Prepares Enhanced Tariff Reduction Proposal for US Trade Deal

Posted by Written by Archana Rao Reading Time: 4 minutes

India has begun formulating the Terms of Reference for a proposed bilateral trade agreement with the US, with the goal of finalizing the initial phase of negotiations by fall 2025. The ToR will outline the objectives, negotiation framework, and scope of the agreement between the two countries.

As India and the US strengthen their economic partnership, the Indian government is actively preparing revised tariff reduction proposals for the upcoming round of bilateral trade negotiations. Media reports indicate that India has initiated work on the Terms of Reference (ToR) for a proposed Bilateral Trade Agreement (BTA), with the aim of concluding the initial phase of discussions by fall 2025.

This initiative reflects the government’s commitment to resolving long-standing trade challenges and advancing the shared objective of doubling bilateral trade to US$500 billion by 2030. 

In a written statement to the lower house of Parliament on March 11, 2025, Minister of State (MoS) for Commerce and Industry, Jitin Prasada, confirmed that both nations are working toward a comprehensive multi-sector trade agreement. The proposed pact seeks to enhance market access, reduce tariff and non-tariff barriers, and deepen supply chain integration. These efforts come amid ongoing concerns regarding potential US reciprocal tariffs on Indian exports and aim to reinforce economic cooperation between the two countries.

Strengthening bilateral trade ties amid global trade pressures

India’s proactive stance comes amid increased global scrutiny on trade imbalances. In a recent address, former US President Donald Trump criticized India’s high import tariffs, calling them “very unfair,” and threatened the implementation of reciprocal tariffs on countries imposing levies on American goods, effective April 2, 2025.

However, Prasad has clarified to the Parliament that no reciprocal tariffs have yet been imposed by the US. He reaffirmed that India is committed to constructive engagement with the US to enhance market access and reduce trade barriers.

India’s tariff reform strategy in focus

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To prevent any escalation of trade tensions and safeguard exporters’ interests, India is reportedly reassessing its tariff structure, particularly in high-sensitivity sectors such as automobiles, textiles, leather, pharmaceuticals, electronics, and agriculture.

Media reports indicate that the central government is consulting key industry stakeholders this week to evaluate the scope of tariff concessions that could be extended to the US under a multi-sector BTA. These discussions are aimed at crafting a revised, mutually beneficial tariff offer ahead of the second round of formal negotiations.

Rising trade and the pursuit of market access

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Trade between the two countries has seen a steady rise in recent years. In 2023, India-US bilateral trade reached US$190.08 billion, comprising US$123.89 billion in goods trade and US$66.19 billion in services trade. India exported goods worth US$83.77 billion to the US, while imports stood at US$40.12 billion, giving India a trade surplus of US$43.65 billion—a key point of contention in US trade discussions.

Despite these tensions, both sides have continued to emphasize their commitment to strengthening commercial ties. During Prime Minister Modi’s visit to Washington on February 13, 2025, both countries agreed to negotiate the first tranche of a BTA, covering market access improvements, tariff rationalization, and supply chain integration.

US memorandum on reciprocal trade: What it means for India

On February 13, 2025, the US issued a Memorandum on Reciprocal Trade and Tariffs, directing the US Commerce Secretary and the US Trade Representative (USTR) to assess the harm caused by non-reciprocal trade arrangements and recommend remedies for each trading partner.

While the memo heightens pressure on countries like India to reduce trade imbalances, it has not yet translated into direct tariffs. India’s response so far has been to intensify diplomatic and trade consultations rather than engage in retaliatory measures, underscoring its interest in preserving the positive momentum in bilateral trade.

Union Minister of Commerce and Industry, Piyush Goyal, concluded a visit to the US on March 7, 2025, followed by internal consultations with Indian exporters and trade associations. As per reports, Goyal is likely to visit the US again with revised tariff order later in March 2025.

Key sectors under review amid India-US tariff negotiations

The following sectors are under active consideration for potential tariff concessions:

  • Automobiles and auto components: Long-standing demand from the US for lower duties.
  • Textiles and leather goods: High-export potential sectors that may benefit from improved US market access.
  • Pharmaceuticals and medical devices: Areas where India seeks regulatory harmonization and reciprocal access.
  • Electronics and high-tech goods: Strategic sectors for value-added trade.
  • Agriculture: A politically sensitive sector where the US expects greater market opening, especially in dairy and processed foods.

Balancing diplomacy and domestic priorities

While India is keen on advancing trade relations with the US, it remains cautious about overexposing sensitive sectors to foreign competition. The government’s evolving approach appears to be one of calibrated liberalization, wherein tariff reductions are matched with domestic industry safeguards and export incentives.

The second round of trade talks is expected to be crucial in shaping the contours of the India-US BTA and may serve as a stepping stone toward a broader Free Trade Agreement (FTA) in the future.

Trump’s tariff actions and implications for India: 2025 timeline

  • January 20, 2025: Donald Trump is sworn in for a second term. In his inaugural address, he reaffirms his commitment to imposing tariffs to protect US economic interests.
  • February 10, 2025: Trump announces plans to reinstate 25 percent tariffs on steel (removing prior exemptions) and increase aluminum tariffs from 10 percent to 25 percent, effective March 12, 2025.
  • February 13, 2025: Trump unveils a “reciprocal tariff policy,” stating the US would implement it on imports from regardless of their economic classification. India, along with China and the EU, is specifically named as a target for upcoming tariff action. Trump criticizes India’s high import duties, especially in the automobile sector, where tariffs exceed 100 percent, labeling it unfair.
  • March 4, 2025: Trump formally reiterates that India will face new tariffs under the reciprocal policy. Key Indian sectors, including automobiles, semiconductors, and pharmaceuticals, are expected to be impacted with tariffs up to 25 percent. Tariff hikes on countries such as Canada, Mexico, and China are implemented simultaneously, triggering retaliatory trade actions globally.
  • March 11, 2025: Indian Minister of State for Commerce & Industry, Jitin Prasada, addresses Parliament and announces that India is preparing revised tariff proposals and working toward a BTA with the US.
  • April 2, 2025: The reciprocal tariff regime targeting countries such as India, China, and the EU is scheduled for enforcement.

Conclusion

India’s ongoing efforts to refine its tariff cut offers represent not just a tactical response to US concerns, but also a strategic opportunity to integrate more deeply into global supply chains and attract greater foreign investment. With both nations committed to enhancing trade, the success of these negotiations could define the next phase of India-US economic cooperation, paving the way for a stronger, more resilient bilateral partnership in the years ahead.

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