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This report comes from this week’s CNBC “Inside India” newsletter, which brings you timely, insightful news and market commentary on the emerging powerhouse. subscription here.
big story
“Easier said than done,” is a statement I heard many times from various experts when discussing the feasibility of the terms of a U.S.-India trade deal.
Less than a week after India-EU trade deal signed finalizedU.S. President Donald Trump announced in a statement on Monday postal On “Truth Society,” he has struck a deal with Indian Prime Minister Narendra Modi, calling him a “great friend.”
Trump says Washington will cut tariffs on Indian goods increased from 50% to 18%while New Delhi will reduce tariffs on U.S. goods to zero, replace Russian oil with U.S. and Venezuelan supplies, open sensitive markets such as agriculture, and purchase $500 billion worth of U.S. goods.
Modi in his reply X expressed pleasure at the 18% reduction in tariffs, thanked Trump and supported his “efforts for (global) peace.”
Despite enthusiasm on both sides, the deal risks derailing. What the two leaders have said — and failed to say — has led to chaos.
Alexandra Herman, chief economist at Oxford Economics, said: “U.S. President Trump’s claim that India will cut tariffs to zero, stop imports of Russian oil, and increase U.S. imports to $500 billion has not yet been confirmed by Indian authorities.”
“They appear to us to be unrealistic, which in turn increases the risk of U.S. reneging on,” she added.
This isn’t the first time Trump has overturned a trade deal.
Last month, Trump raised import tariffs from South Korea to 25% from 15%pointing to South Korea’s legislative body delaying approval of the agreed-upon trade deal.
Nomura Securities said in a report on Tuesday that India’s trade deal with the United States was a major breakthrough but that it was “uncertain that a deal will be reached”, citing Trump’s renewed threat to raise tariffs on South Korea.
controversial sectors
On Tuesday, India formally departed from Trump’s proposed trade terms for the first time, with New Delhi Commerce and Industry Minister Piyush Goyal saying the deal would Protect “The interests of our agricultural and dairy industries are fully respected.”
However, counterparts in Washington are doubling down on Trump’s assertion that India will remove non-tariff barriers in its U.S. agricultural markets and remove tariffs on most agricultural imports.
On Wednesday, U.S. Trade Representative Jamieson Greer said India would reduce tariffs to zero on “a significant number” of agricultural products, adding that a few key areas would receive some protection.
“Tariffs will be reduced to zero on everything from nuts to wine to spirits to fruits to vegetables,” Greer said. Tell CNBC’s Squawk Box. “This is a huge win.”
The domestic agricultural sector is important to both the US and Indian governments.
In December, the Trump administration released a $12 billion aid package to support farmers facing financial difficulties. distressed due to the trade war between the United States and its major economic partners.
Washington needs new markets because of trade ties with second- and fifth-largest markets agriculture Export markets for Canada and the EU respectively have been deteriorating. The president of the United States even threatened Canada if Canada sign Reach a trade deal with China. His plan to annex Greenland also resulted in acidification Relations between the European Union and the United States
For India, agriculture is the main source of economy livelihood For about 42% of India’s 1.4 billion people, this is a politically sensitive issue. The Modi government’s last attempt to implement agricultural reforms ended in failure in 2021. face There was an outcry from the country’s farm lobby.
Reema Bhattacharya, head of Asia Risk Insights, Corporate Risk and Sustainability at Singapore-based consultancy, said India may be wary of across-the-board tariff cuts in “politically sensitive areas such as agriculture” as domestic considerations “remain strong” Willisk Maplecroft.
This year, elections are coming up in three major states: West Bengal, Tamil Nadu and Kerala, all of which are governed by opposition parties and have powerful farm lobbies.
The Indian government has been short on details on the trade deal and is dealing with skepticism from opposition parties. Indian opposition leader Rahul Gandhi defendant Modi “compromised” and “surrendered on tariffs.”
Nitin Bhasin, head of institutional equities at Indian brokerage and research firm Ambit, said: “Without appropriate correction measures, the surge in low-priced food imports may displace some local products, dampen domestic value addition momentum and weaken parts of the FMCG ecosystem.”
Energy security disagreements
Questions have also been raised about the feasibility of Washington asking India to completely stop buying Russian oil and replace it with U.S. or Venezuelan oil.
Experts say that if India completely stops buying Russian crude oil, it will damage the long-term relationship between New Delhi and Moscow.
“New Delhi will not sever important strategic ties with Moscow,” said Kittyji Bajpayee, senior fellow for South Asia at Chatham House.
On Wednesday, India’s Trade and Commerce Minister reiterate The country’s position is that energy security is the government’s top priority. Decisions on energy purchases are made based on the market and “changing international dynamics,” he added.
Despite U.S. sanctions on Rosneft and repeated claims from Washington that India had stopped importing Russian oil, Russia remained New Delhi’s largest crude supplier, shipping 1.06 million barrels a day in January, according to consultancy Rystad Energy.
The Kremlin has persist in New Delhi has yet to make “any statement” on halting Russian supplies.
Avani Bhatnagar, senior oil market analyst at Rystad Energy, said India is a price-sensitive buyer in the global oil trade., “India’s move away from Russian crude may increase procurement costs,” it added.
Experts say that currently, Russian crude is cheaper than its peers due to U.S. sanctions and it is not economical to substitute U.S. crude due to higher freight costs.
Russian Urals crude currently trades at a discount of $11 a barrel to U.S. Brent crude, according to data from commodity intelligence firm Kpler. Middle Eastern crude grades cost $9 a barrel more than Russian oil.
“Russian crude is significantly cheaper,” said Muyu Xu, senior oil analyst at Kpler, adding that halting purchases would squeeze refining margins for Indian state-owned companies such as Indian Oil Corp and Bharat Petroleum Corp.
Experts say India is unlikely to stop Russian crude oil imports as strategic and economic interests are at stake. However, this is a key demand from Washington, so this could become another point of friction in the trade deal.
“India’s energy trade-offs are likely to lead to more severe import bills and current account pressures as capital outflow pressures persist,” said Louis Lu, head of Asia economics at Oxford Economics.
Buy American
India’s pledge to buy more U.S. goods has further added to pressure on India’s import bill.
indian overall goods import The trade deficit in fiscal year 2025 was US$720.24 billion, and the trade deficit was US$94.3 billion. including merchandise worth $45.3 billion from the United States
Now, the U.S. government wants India to buy $5 trillion worth of U.S. defense, transportation, energy and agricultural products. Experts believe that this number will be difficult to achieve even at the intricate speed.
Evan A. Feigenbaum, vice president for research at the Carnegie Endowment for International Peace, said: “Wise analysts would ignore some of the numbers in the agreement, or at least treat them as aspirational.” in a article Tuesday.
India’s Commerce Minister has hint New Delhi may increase imports from the United States in areas such as energy, nuclear power, data centers and aviation, but did not reveal many details.
Chatham House’s Bajpayee said India could buy products from these industries but “reaching the $500 billion target would be somewhat difficult”.
Neither side has announced a firm date for the deal to be formally announced, but India’s Goyal said a joint statement would be issued soon.
Meanwhile, Bhattacharya of risk management firm Verisk advised investors to view “headline commitments as opening positions rather than a certain outcome.” She said there could be a “new round of friction” as negotiators hammer out details.
