India’s ambition to forge a comprehensive trade agreement with the United States has hit a roadblock, with negotiations failing to yield a deal before the July 9, 2025, deadline set by US President Donald Trump for imposing reciprocal tariffs.
The absence of an interim agreement, which could have averted a looming 26 per cent tariff on Indian exports, underscores the complexities of India’s trade strategy. As the world’s largest economy tightens its protectionist grip, New Delhi’s refusal to compromise on key sectors like agriculture and dairy raises a critical question: is India’s resolute stance a defence of its economic sovereignty or a miscalculation that could cost it dearly in a rapidly shifting global trade landscape?
The context of this failure is rooted in high expectations and hard realities. In February 2025, Prime Minister Narendra Modi’s US visit ignited hopes with the announcement of the “US-India COMPACT,” aiming to double bilateral trade to $500 billion by 2030. By April, the Terms of Reference for a Bilateral Trade Agreement were in place, with both sides eyeing reduced tariffs and enhanced market access.
However, as Trump’s deadline approached, negotiations stalled over the US’s push for greater access to India’s agricultural and dairy markets. India’s firm stance, driven by the need to protect its 700 million rural livelihoods, has left the talks in limbo, with no interim deal to shield Indian exports from punitive tariffs. The economic stakes are significant.
The US is India’s largest trading partner, with bilateral trade hitting $129 billion in 2024, bolstered by a $45.7 billion goods trade surplus in India’s favour. Trump’s proposed 26 per cent tariffs, announced on April 2, 2025, could disrupt up to 30 per cent of India’s $66 billion export market to the US, hitting sectors like pharmaceuticals, textiles, and auto components hardest. Some estimates warn of a potential 200 per cent duty on pharma exports if no agreement is reached, threatening an industry that supplies 40 per cent of US generic drugs.
The rupee, already under strain, faces further pressure, with ripple effects on India’s equity markets and industrial competitiveness. India’s negotiating team extended its stay in Washington, offering concessions like zero tariffs on 60 per cent of US imports and preferential access for 90 per cent of US merchandise. Yet, these efforts fell short against US demands for sweeping market openings, particularly for genetically modified (GM) crops like maize and soybeans.
India’s resistance, grounded in biosafety concerns and the need to protect small farmers, echoes its cautious approach in trade talks with Australia, the UK, and the EU. The agricultural sector, contributing 2.5-3 per cent to India’s GDP and employing 80 million people, is a political and economic lifeline. A State Bank of India analysis estimates that opening the dairy sector alone could cost farmers Rs 1.03 lakh crore annually, a risk New Delhi deems unacceptable.
This failure exposes the contradictions in India’s trade policy. On one hand, high tariffs—averaging 17 per cent compared to the US’s 3.3 per cent—have long drawn criticism, with Trump branding India the “tariff king.” India’s partial concessions, such as scrapping its 6 per cent digital services tax and offering tariff reductions on select US farm products, have not bridged the gap. On the other hand, India’s protectionism is not without reason.
The dairy and agriculture sectors are deeply intertwined with rural livelihoods, and any flood of cheap, subsidised US imports could destabilise domestic prices and spark unrest, especially with state elections looming. Farmer groups, including the Indian Coordination Committee of Farmers Movements, have warned of intensified protests if agriculture is included in a deal. Critics argue India’s rigidity is a missed opportunity.
The UK and Vietnam have secured trade deals with the US, with the latter accepting a 20 per cent tariff to gain market access. Even China, facing a 145 per cent tariff, negotiated a temporary reduction to 30 per cent. India, with its lower export reliance (20 per cent of GDP versus Vietnam’s 87 per cent), has leverage but risks falling behind in a world pivoting to bilateral agreements.
A deal could have boosted India’s pharmaceutical and IT sectors, which face fewer tariff barriers, while positioning India as a manufacturing alternative to China. Instead, Indian businesses, from electronics to gems and jewellery, are in a wait-and-watch mode, delaying export orders and client acquisitions amid uncertainty. Yet, India’s caution is not baseless. T
rump’s unpredictable trade policy, marked by aggressive tariff threats and public criticism of India, has sown distrust. His April 2 announcement, followed by a 90-day tariff suspension, felt like a pressure tactic, and India’s negotiators are wary of a deal that compromises long-term interests for short-term relief. The US’s push for GM crops clashes with India’s consumer preferences and regulatory framework, while demands for dairy access threaten a sector integral to rural stability.
A hasty agreement could erode domestic support for the government, particularly if perceived as bowing to external pressure. The consequences of this stalemate are already unfolding. With the August 1 tariff deadline approaching, Indian industries brace for higher costs, and the rupee faces renewed volatility. However, the door is not entirely closed.
Trump’s recent comments suggest flexibility, and India’s geopolitical weight as a counterbalance to China could yield a “mini-deal” focused on less contentious sectors like IT and pharmaceuticals. For now, India’s failure to secure a trade deal reflects a broader tension: the need to protect its domestic economy versus the imperative to compete in a protectionist world.
New Delhi’s gamble is that holding firm will secure better terms later—but with global trade dynamics shifting, the cost of this standoff could prove steep.