US-India Trade Deal Lifts Markets, But Key Details Are Missing

A reported trade deal between the United States and India sent a wave of relief through Indian markets, with President Donald Trump's announcement of major tariff cuts boosting investor sentiment. However, the initial euphoria is tempered by a significant lack of official details from either government, leaving key questions unanswered.

The agreement, announced by Trump on social media, centers on the U.S. slashing tariffs on Indian imports to 18% from a high of 50%. The move sparked a rally, with India's Nifty 50 stock index climbing nearly 3% and the rupee strengthening over 1% to 90.40 per dollar in early trading.

What the Trade Agreement Aims to Achieve

In exchange for lower tariffs, India has reportedly agreed to several key concessions. According to an Indian government official, the deal includes commitments to:

• Halt purchases of Russian oil.

• Increase purchases of American petroleum, defense equipment, and aircraft.

• Partially open its historically protected agriculture sector.

• Lower tariffs on imported cars to meet immediate U.S. demands.

President Trump stated that India would boost its purchases of American goods to over US$500 billion, covering energy, coal, technology, and agricultural products, though he did not specify a timeframe for this target.

This new tariff structure positions India more competitively against its regional peers. U.S. tariffs on goods from Indonesia currently stand at 19%, while Vietnam and Bangladesh face a 20% rate.

A Surge of Optimism from Exporters and Economists

The announcement was met with positive reactions from Indian economic leaders. Anuradha Thakur, India's economic affairs secretary, noted that the deal has "reduced a great deal of global uncertainty."

Analysts believe the reduced tariffs will directly benefit major Indian export sectors. Neelkanth Mishra, chief economist at Axis Bank, said the agreement "removes India's earlier disadvantage versus peers," adding that it will help industries like gems and jewellery, leather, plastics, ceramics, and auto components.

The sentiment was echoed by SC Ralhan, president of the Federation of Indian Export Organisations. "Lower tariffs will not only improve price competitiveness but also help Indian exporters integrate more deeply into U.S. supply chains," he said.

Moody's Ratings also stated that the tariff reduction would reinvigorate India's exports to the U.S. The trade relationship is already substantial, with Indian exports to the U.S. reaching US$85.5 billion between January and November, a 15.88% year-on-year increase. During the same period, imports from the U.S. totaled US$46.08 billion.

The Russian Oil Dilemma Clouds the Deal

Despite the optimism, the deal's execution faces significant hurdles, particularly concerning the commitment to stop buying Russian oil. Indian refiners have indicated they will need a wind-down period to fulfill existing contracts and have not yet received official government orders to halt these imports.

Adding to the uncertainty, the Kremlin stated it had not received any official statements from India about ceasing Russian oil purchases.

Moody's warned that an immediate halt could be disruptive to India's economy. "A complete shift toward non-Russian oil could also tighten supply elsewhere, raise prices and pass through to higher inflation given that India is one of the world's largest oil importers," the rating agency noted.

Unanswered Questions Linger

The lack of a formal announcement from either the White House or New Delhi has left many aspects of the deal unclear. Beyond the Russian oil issue, details on agricultural concessions remain scant.

U.S. Agriculture Secretary Brooke Rollins mentioned that the deal would ensure more American farm exports to India, but provided no specifics. This is a particularly sensitive area, as India has historically excluded key farm and dairy products from trade deals to protect its millions of subsistence farmers.

While the market's initial reaction is positive, the true impact of the US-India trade agreement will depend on the final details, which have yet to emerge.