Announced by United States president Donald Trump on February 2, the US-India trade deal will see American tariffs on Indian goods go from 25% to 18%. An additional 25% ‘penalty’ imposed on India for its purchase of Russian oil has also been dropped.
India, on the other hand, will have to remove all tariffs and non-tariff barriers on US products.
However, beyond celebratory social media posts from Trump, Indian Prime Minister Narendra Modi and envoys of the two countries, neither government has issued a formal press communique or detailed statement.
This is primarily something that has led trade bodies to advice caution ahead of celebration.
The think tank Global Trade Research Initiative (GTRI) in is initial statement, highlighted that key details are not clear.
“India should not rush to celebrate President Trump’s trade announcement,” the think-tank’s head Ajay Srivastava noted in the aftermath of Trump’s first Truth Social post.
“The Truth Social post leaves major questions unanswered – what products are covered, what the timelines are, and whether India has really agreed to zero tariffs and zero non-tariff barriers, especially in sensitive areas like agriculture and regulated imports. The headline figure of $500 billion in U.S. purchases is also unclear. India currently imports less than $50 billion a year from the U.S., suggesting this is more an aspiration than a firm commitment,” the GTRI said.
The GTRI focused on confusing phrasing noting how Trump said that US tariffs would be reduced from 25% to 18%, but because the post also mentioned India stopping Russian oil purchases – earlier linked to punitive tariffs – it was unclear whether the cut was actually from 50% to 18%, or whether Trump misstated the original tariff level. The US later clarified that tariffs are indeed being reduced from 50% to 18%.
The GTRI noted that the US has already offered reciprocal tariffs at 10% to the United Kingdom, at 15% to the European Union and Japan, at 19% to Indonesia and Malaysia, and at 20% to Bangladesh and Vietnam in respective trade deals that took place between May and October 2025. These tariffs are over and above the ‘Most Favoured Nation (MFN)’ tariffs, except for the EU.
For EU, if a product’s MFN tariff is up to 15%, the combined reciprocal and MFN tariff will be capped at 15%. But if a product’s MFN tariff is above 15%, the existing MFN tariff will continue to apply.
The GTRI has thus highlighted how, even after trade deal, US Section 232 tariffs on steel, aluminium, copper, etc. will remain at 50% and on few auto components at 25%. Also, zero tariffs for pharmaceuticals, aircraft and parts, some mechanical and electronic components will continue.
The GTRI has noted the absence of mention on how many products are covered under India’s ‘zero tariff’ commitment. India has previously resisted opening sensitive sectors such as food grains, genetically modified products, and other regulated imports.
Also observing that at present, India’s annual imports of goods and energy from the US are under $50 billion, the GTRI has questioned the nature of the “$500 billion” promise, saying that it would likely require more than 20 years, suggesting the figure refers to a long-term aspiration rather than a near-term commitment.
“Until there is a joint statement, negotiated text, and clarity on enforcement, this should be seen as a political signal – not a final deal. Caution, not celebration, is needed,” it said.
‘Game changer’
The Federation of Indian Export Organisations (FIEO) was rather jubilant and called this the “father of all deals”. FIEO president S.C. Ralhan said that the development was historic and a “game-changer for Indian exporters,” particularly MSMEs.
In a statement, Ralhan said that sectors such as engineering goods, textiles and apparel, pharmaceuticals, chemicals, leather products, gems and jewellery, and agricultural products are expected to gain significantly. At this point, however, there is no clarity on the goods covered by the trade deal yet, on the absence of any official document.
“Lower tariffs will not only improve price competitiveness but also help Indian exporters integrate more deeply into US supply chains. This agreement will encourage capacity expansion, attract fresh investments, and support job creation in export-oriented industries,” he added.
The FIEO expects that the announcement will lead to an “immediate and substantial” release of orders that were earlier put on hold, particularly in labour-intensive sectors such as apparel, textiles, leather and footwear, where global buyers typically lock in summer season sourcing by December.
Ralhan also thanked Prime Minister Narendra Modi for “safeguarding exporters’ interests and engaging constructively with US counterparts to arrive at a mutually beneficial outcome.” “This agreement sends a strong signal to global markets about India’s commitment to free, fair, and rules-based trade,” the statement said.
‘Could provide significant relief’
The Bank of America’s BofA Securities observed that “the top line tariffs rate (except section 232 tariffs we believe) will fall to 18%, which could provide India with significant relief and a competitive rate across the region, with the Russian oil penalties being removed as well.”
On Trump’s claim of $500 billion trade, the body said that it believes that India’s opening of its markets to more US products “will enable greater technology imports and could also spur greater FDI from US over time, especially with India’s participation in various US initiatives like Pax Silica.”
The firm estimates that even without accounting for the rupee weakness persisting to some extent, the impact of 18% tariffs will be blunted. Accounting for section 232 tariffs on all products like steel, aluminum and automobiles staying in place, the firm estimates that the effective tariff rate on India might be just around 12-13% as per our estimates, down from almost 30-35% previously.
This would provide significant relief to India’s export sector, especially labour intensive areas such as gems and jewellery, textiles, agricultural products and engineering goods.
The statement said that there is already reasonable growth in high frequency indicators, which leads BofA Securities to expect that GDP growth will benefit further from this trade breakthrough.
The body also foresees that RBI’s rate cutting cycle is over, now that one of the key sources of uncertainty for the growth outlook is gone.
Courtesy: The Wire
Wednesday, February 25, 2026