Saturday, 27 Sep, 2025
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The IMF’s revised outlook reflects optimism about India’s economy, though mounting global trade headwinds may challenge efforts to sustain that momentum.
India’s push to secure a trade agreement with the US has stalled, with talks breaking down after months of negotiations. The setback comes at a difficult moment, as Donald Trump has announced a 25 per cent tariff on Indian exports beginning August 1. The collapse is a blow to India’s export strategy and its wider efforts to strengthen economic ties with Washington.
Washington is now New Delhi’s largest trading partner, with bilateral goods trade crossing $125 billion in FY25. India exports more than $86 billion worth of goods to the US and runs a trade surplus exceeding $40 billion. Those figures highlight how vital this relationship has become. Yet, without a formal trade agreement, Indian exporters now face the risk of being outpaced by competitors like Vietnam, Ecuador, and Mexico, which already enjoy better access to American markets through free trade deals or preferential tariffs.
New Delhi’s booming smartphone exports to the US—driven by Apple suppliers like Foxconn, Dixon Technologies, and Tata Electronics—face a major setback as new tariffs take effect. Indian-made iPhones now make up 44 per cent of US smartphone imports, thanks to a 240 per cent year-on-year surge, according to Canalys. But that growth is under threat. The new duties could erase India’s cost advantage overnight and stall its rise as a key player in global electronics manufacturing.
The mobile phone exports to the US more than doubled, rising from $2.2 billion in FY23 to $5.7 billion in FY24.
Key export sectors—textiles, gems and jewellery, toys, engineering goods, and particularly shrimp—stand to lose the most. The shrimp industry is especially exposed, with the US as its largest buyer. Countries such as Ecuador and Indonesia, which benefit from lower trade barriers, could grab the opportunity to capture India’s market share.
Stalemate Rooted in Politics
At the heart of the impasse is agriculture. The US has been pressing for greater access to India’s dairy and farm markets. India, for its part, has held firm, unwilling to expose politically sensitive sectors to foreign competition. That stance reflects domestic realities—millions of Indians depend on agriculture, and sudden exposure to global competition could be damaging.
Washington’s trade model—low, uniform tariffs in exchange for wide market access—clashes with New Delhi’s more cautious approach. Concerns over employment, rural incomes, and food security constrain how far India can go in liberalising its economy.
Foreign investors, too, are watching closely. Many companies eyeing alternatives to China had started to view India as a viable manufacturing base. But in the absence of meaningful trade facilitation, others may find countries like Vietnam more attractive.
Tariffs, Sanctions, and Rising Uncertainty
The situation escalated after Trump’s recent warning: a proposed 25 per cent tariff on Indian exports and potential sanctions on Indian purchases of Russian oil and defence equipment. That threat strikes at a critical pillar of India’s energy strategy. In June, India imported 2.1 million barrels per day of Russian crude—nearly 45 per cent of its total oil imports—at discounted rates, with shipments valued at around $4.3 billion. If sanctions force India to stop importing Russian oil, it may have to rely more on West Asian suppliers, where prices are higher.
The consequences would be immediate: a spike in energy import bill, higher inflation, and pressure on the current account deficit.
Industry reaction has been swift. FICCI President Harsha Vardhan Agarwal called the US move “disappointing” and cautioned that it could weaken exports and job creation. He expressed hope that the current tensions would prove temporary and pave the way for a long-term agreement.
Time for Strategic Recalibration
The collapse of the talks should serve as a wake-up call. India is at a critical juncture. With global trade alliances shifting and supply chains realigning, the window to integrate more deeply with world markets may not stay open for long.
India must now reassess its trade strategy. Protecting vulnerable sectors is important, but so is ensuring that its exporters are not shut out of key markets. The government owes the public transparency—both on why the talks failed and how it plans to move forward.
The International Monetary Fund recently raised India’s growth forecast, signalling confidence in its economic trajectory. But in today’s volatile trade environment, that optimism could quickly fade. If India wants to lead in the new global order, it must act decisively—before opportunity turns into regret.
