Key issues that could jeopardise India-U.S. trade talks

New Indian Express

10 hours ago

The India-US Bilateral Trade Agreement (BTA) is yet to see the light of day. The July 9 deadline — marking the end of the 90-day exemption period for the imposition of reciprocal tariffs by the US — just passed by without a deal. Now, a new deadline has emerged: August 1.
India was the first country to initiate Free Trade Agreement (FTA) talks with the US after its newly elected President Donald Trump threatened high tariffs on countries running trade surpluses with Washington. With a trade deficit of over $40 billion in favour of India, Trump repeatedly took jabs at India, dubbing it the 'Tariff King'.
While India began negotiations aiming to 'pacify' Trump, whose unpredictable stance on tariffs and trade unsettled many, it soon became clear that the US was seeking far more than symbolic gestures. As talks progressed, India toughened its position on several issues, leading to the current stalemate.
In a last-ditch effort ahead of the new deadline, a team of Indian negotiators is likely to visit the US soon to iron out the remaining differences. While dates are yet to be finalised, the team may travel to Washington next week.
Meanwhile, India's stance appears to have shifted — indicating it would rather have no deal than accept a bad one.
Contentious issues
There are multiple sticking points between the two countries, with the most contentious being tariffs on agriculture, dairy products, automobiles & auto components, and steel. Beyond tariffs, the US is also reportedly pushing for large-scale commercial deals involving oil and LNG, civilian and military aircraft from Boeing, helicopters, and nuclear reactors. Washington may additionally be urging New Delhi to ease FDI restrictions in multi-brand retail, benefiting companies like Amazon and Walmart.
India, for its part, is determined to safeguard the livelihood of its farmers and over 8 million dairy cooperative members, as well as protect MSMEs and labour-intensive sectors from potential adverse impacts of the deal.
Agriculture & related concerns
The pressure on Indian negotiators to protect farmers' interests is immense. According to Ajay Srivastava, founder of GTRI, agricultural goods make up less than 5% of US exports to India, yet Washington is aggressively pushing on this front. He warns that any tariff concessions could embolden the US to later demand dilution of India's minimum support prices (MSP) and public procurement systems — pillars of India's food security framework.
Ashwani Mahajan, National Co-Convener of the Swadeshi Jagaran Manch (SJM), sees this as a major red flag. 'International prices of agricultural goods are half of the MSP provided by India. Any compromise on agricultural goods in the trade talks could jeopardise the livelihoods of thousands of farmers,' he says.
A March report by the Office of the United States Trade Representative (USTR) flagged India's farm subsidies, particularly the MSP system for rice and wheat, as distorting global prices and disadvantaging US farmers.
Currently, Indian farm exports to the US face a modest 5.3% tariff, while US farm exports to India are hit with a much steeper 37.7% tariff — a 32.4% gap. At a proposed 26% reciprocal tariff, Indian agri exports could be more heavily taxed in the US, while lowering tariffs on US farm imports might flood Indian markets with cheaper goods.
Disagreements on dairy sector
On dairy, the US argues that India's GM-free feed certification and facility registration protocols effectively amount to a ban on American dairy imports. Indian rules prohibit imports of animal products fed on animal-derived feed — for example, butter from cows fed meat — due to deep religious sensitivities. India considers this policy non-negotiable.
Pushback on GM crops
The US has also been pressing India to allow imports of GM crops such as soybean meal and distillers dried grains with solubles (DDGS) for animal feed, a demand that has faced growing opposition in India.
Initially, the Indian government did not strongly oppose the idea of some tariff cuts on farm goods or even selective GM imports. A Niti Aayog report earlier this year argued that the US would remain a key market for India's surplus food exports, suggesting that a 'strategic opening for US imports' could help secure broader export gains. The report even proposed importing GM soybean seeds under a controlled model, where seeds would be crushed at coastal facilities, oil sold domestically, and soymeal (with GM traits) exported to avoid domestic contamination.
However, experts cautioned that enforcing tight control on GM material would be nearly impossible given India's weak regulatory oversight, fragmented supply chains, and informal markets. 'Once GM products enter the country, there is a high risk they will leak into domestic agriculture, raising serious concerns over food safety, environmental impact, and potential export bans from countries that don't accept GM contamination,' one expert noted.
Following public outrage, Niti Aayog quietly withdrew the report.
Auto components
The US has already slapped a 25% tariff on auto and auto components. While India's passenger vehicle exports to the US are minimal (just 0.21%), auto components make up 28% of India's total exports to the US. This high tariff thus poses a serious threat to revenues of Indian component manufacturers.
According to an ICRA report, the recent US tariff hikes could add roughly `9,000 crore in costs across the supply chain, ultimately to be borne by US consumers, importers and Indian exporters. 'The extent to which Indian auto component exporters absorb this burden will depend on their competitiveness and the price elasticity of exported products,' ICRA noted.
India has since notified the World Trade Organization (WTO) of its intention to impose retaliatory tariffs on select US auto parts, targeting exports valued at approximately $2.9 billion annually, with the duties expected to yield an additional $723 million.
Steel & aluminium
Similarly, the US has imposed a steep 50% tariff on steel and aluminium, directly impacting India. In FY2025, India exported $4.56 billion worth of iron, steel and aluminium products to the US, including $587 million in iron and steel, $3.1 billion in articles of iron or steel, and $860 million in aluminium and related products. These exports are now vulnerable to sharply higher tariffs, threatening profitability.
India has already filed a formal notice at the WTO outlining plans to impose retaliatory tariffs on US goods. Domestically, the US move has also resulted in a surge of cheaper Chinese imports into India, prompting New Delhi to impose a 12% safeguard duty on steel imports. However, a 50% tariff is seen as unsustainable, and Indian negotiators have reportedly raised the issue with Washington.
Beyond tariffs: Other friction points
The BTA negotiations are not confined to tariffs alone. The USTR report cited earlier also highlighted India's restrictive digital trade rules, weak intellectual property enforcement, and opaque procurement practices as key hurdles for US businesses. The USTR flagged India's Digital Personal Data Protection Act (DPDPA) for restricting cross-border data transfers and mandating data localisation. As mentioned earlier, agriculture subsidy remains another key point of difference between the two countries.
While India has expressed interest in striking a mini deal before the August 1 deadline that focuses solely on tariffs, it remains to be seen if the US is willing to temporarily set aside more contentious issues such as IP and farm subsidies.
In the case of a no deal, India would be hoping the US levies a lower tariff (lower than 26% announced earlier) on its goods exported to the US.