The Promise of a Pact
For years, a comprehensive trade agreement has been viewed as the next logical step in the deepening India-US relationship. The goal was to create a stable framework, reduce tariffs, and provide Indian goods with more predictable access to their largest
market. For India, a deal promised to lock in competitive tariff rates, particularly against regional manufacturing rivals like Vietnam, and potentially restore trade benefits lost in recent years. For the US, it was about gaining better access to India’s vast market, especially for its agricultural goods and digital services, and strengthening a key strategic partnership in the Indo-Pacific. The talks, ongoing for well over a year, have been described as “incredibly close” to completion, yet a final signature remains elusive.
Why Have the Talks Stalled?
Despite officials on both sides insisting that 99% of the work is done, the final one percent contains significant hurdles. Key sticking points reportedly include disagreements over market access for US farm products, with India remaining protective of sensitive sectors like dairy and agriculture which support millions of livelihoods. Additionally, US concerns over India's digital trade policies and intellectual property rights have been been a consistent point of friction. From the Indian side, there is a strong desire for assurances against future tariff hikes. Complicating matters further are broader geopolitical issues, including India's continued purchase of Russian oil, which has led to the threat of additional US sanctions and tariffs.
The Lingering GSP Problem
A major issue casting a long shadow over the talks is the US withdrawal of India's benefits under the Generalized System of Preferences (GSP) program back in 2019. This program once allowed thousands of Indian products to enter the US market duty-free, providing a significant advantage for Indian exporters. Its termination meant that items like jewellery, auto parts, and textiles immediately became more expensive and less competitive. A new trade deal was widely expected to address this issue and potentially restore some form of preferential access. Without a pact, Indian exporters continue to operate at a disadvantage, paying standard tariffs while competitors from other nations may enjoy better terms.
Which Sectors Are Feeling the Pinch?
The uncertainty and lack of a deal disproportionately affect labour-intensive, low-margin export sectors. Industries such as gems and jewellery, textiles and apparel, leather goods, and certain engineering products were major beneficiaries of the old GSP system and have found it challenging to absorb the higher costs. While overall export numbers to the US have shown resilience, with some sectors successfully diversifying their markets, specific product categories have suffered. For example, at times when tariff threats have loomed, jewellery exports to the US have seen sharp declines. The lack of a predictable tariff environment makes long-term planning difficult for businesses in these sectors, who now face a baseline tariff on top of other duties.
What Happens Now for Exporters?
In the absence of a comprehensive deal, Indian exporters are adapting to a new normal of uncertainty. Many have been forced to become more agile, actively seeking to diversify their export destinations to reduce their reliance on the US market. The Indian government has also revived trade negotiations with other partners, including the UK and the European Union, to create alternative opportunities. While officials from both India and the US continue to express optimism that a deal is just 'weeks away,' exporters on the ground are focusing on what they can control: improving efficiency, managing costs, and exploring new markets. The Reserve Bank of India has suggested that while a failure to secure a deal could have a negative impact, this diversification might cushion the economy from the worst of the fallout.
