India-US trade deal: How Trump influenced India’s trade policy in the run-up to the pact

Data shared by the Commerce and Industry Ministry shows that India’s goods trade surplus with the US has nearly halved to $1.73 billion in November from $3.17 billion in April.

While the US tariffs have resulted in a steep decline in exports to the US, particularly after August 27, when the 50 per cent tariffs came into effect, India has stepped up imports from the US. India’s exports to the US decreased from $6.86 billion in August to $6.30 billion in October, while imports rose from $ 3.60 billion in August to $4.84 billion in October. The decline has been most pronounced in labour-intensive goods such as garments, footwear and sports goods. But India’s exports in November jumped by 22 per cent, largely driven by exports of electronic goods that remain out of the tariff net.

US crude imports surge while Russia’s slip

The additional 25 per cent tariffs have been among the most politically strained issues between the two countries, holding up the trade deal. The imposition of additional tariffs on August 27 derailed trade deal negotiations and led to further complications. With US tariffs on India reaching 50 per cent, India became the hardest-hit country, as the US lowered its tariffs on China last month following a trade truce.

However, India has steadily increased crude imports from the US, and Washington’s sanctions on Russian oil companies Lukoil and Rosneft have led to a decline in Russian oil exports to India. Trade data showed that the US’s share in India’s oil imports has surged to 7.48 per cent between April and October this year, compared with 4.43 per cent during the comparable period last year. In contrast, Russia’s share has come down from 37.88 per cent to 32.18 per cent.

India-US LPG deal & nuclear reforms

Indian public sector refiners last year signed a one-year deal for American liquefied petroleum gas (LPG) imports. While crude oil imports are already nearing 10 per cent, the imports of LPG of around 2.2 million tonnes per annum (MTPA) of LPG also come close to 10 per cent of India’s annual imports.

LPG is predominantly used as a cooking fuel, with much of India’s requirement being imported from countries like Saudi Arabia, the United Arab Emirates, Qatar, and Kuwait. For the past few years, the US has been the fifth-largest supplier of crude oil to India. It has also been the second-largest supplier of liquefied natural gas (LNG) to India. As for LPG, over 60 per cent of the petroleum fuel’s requirement in India is met through imports.

Amid the Trump administration’s push for expansion of existing nuclear power plants and the development of small-scale reactors, India has also opened its nuclear sector to foreign investments.

Swift push for diversification & reforms

The uncertainty around the trade deal had triggered an outflow of investments and re-examination of India’s industrial policy. In the past few months alone, the government has rolled back numerous quality control orders (QCOs) that had a bearing on the competitiveness of the MSMEs. The government also removed the 11 per cent duty on cotton to ease pressure on the textile value chain due to US tariffs.

Meanwhile, India increased its push for trade deals with large markets such as the European Union. New Delhi wrapped up negotiations with New Zealand and signed a deal with Oman. India is also negotiating deals with the GCC and Russia led Eurasian Economic Union (EAEU).