Even as India is placed in the direct line of fire of US President Donald Trump’s reciprocal tariffs, Nomura said that the Bilateral Trade Agreement (BTA) negotiations is an encouraging sign. India’s weighted average effective tariff rate on US imports is much higher than US tariffs on India, India has high non-tariff barriers and it imposes a goods and services tax, meeting many of the criteria on which the US is likely to determine the reciprocal tariff on each country. In an analysis report, Nomura said that India has adopted a conciliatory approach to Trump, with India and the US actively negotiating a BTA, the first tranche of which is likely to be finalised by the “fall of 2025”.
“The BTA would 1) expand trade and market access across sectors; 2) reduce tariffs on various US products; 3) decrease non-tariff barriers by aligning with international norms; and 4) deepen supply-chain integration in critical industries,” the report stated.
Interestingly, a team of US officials are visiting India on Tuesday to take forward the ongoing trade discussions including the scope of the BTA. Both sides are expected to finalise the contours of the BTA and negotiation schedule during three day talks.
“Assistant US Trade Representative for South and Central Asia Brendan Lynch, along with a team of US government officials, will be in India March 25-29 for meetings with Indian interlocutors as part of ongoing bilateral trade discussions,” a statement by the US embassy in India said on Monday.
India’s approach to Trump tariff
India has adopted a more conciliatory approach to the Trump presidency, unlike other key trading partners to the US and it has proactively taken steps to reduce its trade barriers. Before Prime Minister Narendra Modi met Donald Trump in February, which set the stage for India and the US to start negotiations on a bilateral trade agreement (BTA), India had ready cut duties in sectors like textiles, motorcycles and bourbon. Unlike many other countries, India also avoided any tit-for-tat response to provocations from Trump, be it in rhetoric or in terms of actual tariff increases, despite being hit by the US’s global tariff hikes on steel and aluminum imports.
Since the Modi-Trump meeting, there have been several high-level exchanges to negotiate on the BTA. Commerce Minister Piyush Goyal had visited the US in early March, and today, the US Assistant Trade Representative Brendan Lynch is visiting India to further the discussions on the BTA.
Further, according to a report by Business Standard, India has shared a ‘non-paper’ – a non-binding and informal discussion paper – to the US outlining its point of view to “test the waters”. The US, too, is expected to give its feedback on India’s proposals and share its own ‘non-paper’. The aim of these discussions is to finalize the structure of the BTA, after which negotiations will begin on a mutually beneficial, multi-sector trade agreement.
The BTA framework
While very little is known about the BTA as negotiations are just beginning, per Nomura, it is likely to cover the following four areas:
Expansion of trade and market access
India and the US have set a ‘Mission 500’ goal, which aims to double total bilateral trade to $500 billion by 2030 across goods and services. According to the Ministry of External Affairs, this will be done by increasing US exports of industrial goods to India and increasing Indian exports of labor-intensive manufactured products to the US, and both sides will also work to increase trade in agricultural goods, Nomura said while adding that increased market access for services through liberalization of work visa norms for India’s IT sector and opening India’s market for US-based tech and financial services firms may also be a part of the deal.
Reduced tariffs
Indian authorities are looking to lower the tariff rate on US imports. “India is reported to have offered tariff reductions across several product categories, including labour-intensive sectors such as textiles and leather, agricultural products such as pulses, automotive segments such as motorbikes and four-wheelers, energy products and raw materials used for manufacturing such as chemicals, industrial inputs and IT products,” the Nomura report stated.
Reduced non tariff barriers (NTB)
Details on the non-tariff barriers are less known at this stage. However, Nomura said, India could offer to align its sanitary and phytosanitary measures more closely to international norms to enable the import of US agricultural products. Interestingly, earlier this month, on GST, Finance Minister Nirmala Sitharaman stated that “we are very close to making some critical decisions on rate reductions and number of slabs”, adding that the revenue-neutral rate had fallen from 15.8 per cent in 2017 to 11.4 per cent in 2023. “While there was nothing to suggest this was triggered by US-India trade negotiations, one of the non-tariff barriers Mr Trump has talked of is countries charging VAT, which acts as a tax on importers. However, any tweaks to India’s GST rate structure will need to be agreed upon by the GST council, which comprises both the centre and states,” Nomura said.
Deeper supply-chain integration
India and the US are looking to collaborate on building resilient and secure supply chains, including for semiconductors, critical minerals (recovery and processing of lithium and rare earth elements), advanced materials and pharmaceuticals (expanding Indian manufacturing capacity, including in the US, for active pharmaceutical ingredients for critical medicines).
What this means for India?
In an interview with Fox News last week, US Treasury Secretary Scott Bessent had stated that “I am optimistic that (on) 2 April, some of the tariffs may not have to go on, because a deal is pre-negotiated or once countries receive their reciprocal tariff number, right after that, they will come to us and want to negotiate it down.”
While India ranks high on tariff and non tariff barriers, Nomura said that “…the ongoing flurry of negotiations on a bilateral trade agreement with the US means that the impact of reciprocal tariffs on India could be less bad than is currently feared, either because a deal is pre-negotiated or because India is keen to negotiate it down. As such, India could fare better than other economies.”
Second, the US push to lower tariffs could also be a blessing in disguise for India. Earlier, Commerce Minister Piyush Goyal was quoted saying that domestic industry should wean itself off the “crutches” of subsidies, high import duties and other forms of protection, and instead focus on competitiveness. Increased competition could be just the push domestic manufacturing needs to focus on innovation and efficiency.
Third, India’s government is also actively pursuing steps to diversify the markets for Indian exporters. India has been aggressively pursuing trade agreements with several countries, including the UK, EU, New Zealand, Oman and Qatar, and Piyush Goyal recently proposed a free trade agreement with the Mercosur bloc (Argentina, Brazil, Paraguay and Uruguay), per a report by Economic Times .
Finally, the WTO’s ‘Most Favoured Nation’ rule would require India to offer similar lower tariffs for other trading partners. “However, if the BTA eliminates tariff and trade restrictions on “substantially all the trade” between India and US and is notified to the WTO, or if the BTA is an interim step towards the creation of an FTA eventually, then select tariff reductions for the US could be possible, although India will need to be careful in complying with WTO principles,” Nomura said.