India-US trade deal: As US trade team arrives, how trade relations are shifting

India-US tariffs update: A high-level US team, led by newly appointed Deputy USTR Rick Switzer and India deal negotiator Brendan Lynch, is arriving in New Delhi today for a two-day round of talks starting Wednesday. Their visit has revived expectations that the long-delayed trade agreement could finally move toward completion. The lack of such a deal has driven up tariffs on Indian goods and drawn criticism that Washington is mishandling ties with an important strategic partner and a regional counterweight to China.

This meeting carries significant weight as doubts over the trade deal have begun to impact investment and exports in India, while rival nations have gained advantages through lower duties. New Delhi now appears more optimistic about reaching an agreement, as trade conditions have evolved since talks first began in February. Commerce Secretary Rajesh Agrawal recently said it is “only a matter of time” before a decision on the deal is finalized.

With India’s trade surplus with the US shrinking after Washington imposed steep 50 per cent tariffs, New Delhi has recalibrated its economic strategy. India has expanded its purchases of US energy and begun exploring broader trade diversification to offset the tariff impact. Here’s a closer look at what’s at stake as negotiations resume this week.

India’s trade surplus with the US narrows

The sizeable goods trade gap between the two countries was one of US President Donald Trump’s key concerns, even before taking office earlier this year. However, new data from the commerce and industry ministry shows that India has boosted imports from the US, effectively halving the trade surplus—from $3.17 billion in April to $1.45 billion in October.

The sharp tariffs have caused exports to the US to fall sharply, especially after August 27 when the 50 per cent duties took effect. India’s shipments to the US dropped from $6.86 billion in August to $6.30 billion in October, while imports jumped from $3.6 billion to $4.84 billion during the same period. The decline has been most severe in labour-intensive sectors such as clothing, footwear, and sports goods.

Rising US crude imports, falling Russian supplies

Additional 25 per cent tariffs have been one of the most contentious political flashpoints between the two sides, delaying progress on the trade pact. The new tariffs, imposed on August 27, disrupted ongoing negotiations. With overall US tariffs on Indian goods now as high as 50 per cent—while duties on Chinese goods eased following their trade truce—India has been among the most affected.

Still, some headway appears possible as India has steadily ramped up crude oil imports from the US. Meanwhile, Washington’s sanctions on Russian firms Lukoil and Rosneft have cut Russia’s share of Indian oil shipments. Data shows the US share in India’s oil imports jumped to 7.48 per cent between April and October, up from 4.43 per cent the previous year. Russia’s share slipped from 37.88 per cent to 32.18 per cent.

India-US LPG agreement and nuclear sector openness

In a move that could pave the way for tariff relief, Indian state refiners last month signed a one-year contract for imports of American liquefied petroleum gas (LPG). With crude imports from the US already approaching 10 per cent, the LPG deal—worth about 2.2 million tonnes annually—represents nearly a tenth of India’s yearly LPG imports.

LPG, largely used as a cooking fuel, is primarily sourced from the Gulf region—Saudi Arabia, the UAE, Qatar, and Kuwait. The US ranks as India’s fifth-largest crude supplier and the second-largest exporter of liquefied natural gas (LNG) to India. More than 60 per cent of India’s LPG demand is met through imports.

Amid the Trump administration’s focus on expanding nuclear capacity and promoting small modular reactors, India has shown growing willingness to collaborate with the US. Last month, Prime Minister Narendra Modi said his government was preparing to open the heavily regulated nuclear energy sector to private players.

India’s broader urgency beyond exports

Alongside declining exports to the US in both September and October, business uncertainty in India has intensified as competitors secure lower tariff privileges. A Bank of America (BoFA) report highlighted that the main challenge stemming from US tariffs has been disruptions to capital inflows.

“Capital flows have become increasingly complex, affecting FDI, FPI, and debt-related inflows—all of which have slowed. According to official data, the RBI has sold around $65 billion in the open market between October 24 and September 25 and now holds a short forward position of $63.6 billion as of October, likely higher in November amid continued pressure on the rupee,” the report said.

The note added that the rupee’s nearly 7 per cent decline over the past year—underperforming other major currencies—has led to a real effective exchange rate drop of over 9 per cent. Persisting weakness, driven by ongoing trade uncertainty and tightening capital flows, could weigh on several macroeconomic indicators if it continues, the report warned.

Government’s rapid push for diversification and reforms

The uncertain outlook that has caused capital outflows has also led New Delhi to reassess its industrial policy framework. In recent months, the government has reversed several quality control orders (QCOs) that affected MSME competitiveness and scrapped the 11 per cent import duty on cotton to ease strain across the textile supply chain.

Following earlier GST rate cuts that reduced prices on everyday goods, the government has now notified long-delayed labour codes. A reform panel headed by Niti Aayog’s Rajiv Gauba is drafting a new deregulation package to boost manufacturing and investment.

At the same time, India is ramping up trade outreach to major markets, including the European Union, whose delegation is currently in Delhi to finalize a deal by year-end. New Delhi has also launched trade talks with New Zealand, Israel, Chile, and Peru, and earlier this year began negotiations on a pact with the Russia-led Eurasian Economic Union.