Opinion India has bagged trade deals with EU and US. It’s an opportunity
It can emerge as a credible “China plus one” partner if it invests in skills and domestic capacity
From what appeared to be a second-best outcome, India has now moved decisively towards a first-best one. If the India-EU trade agreement can be called “the mother of all deals”, the India-US trade agreement may well qualify as the “father of all deals”. While the details are still awaited, it is now clear that the penalty on all Indian exports to the US, along with the “liberation day” tariffs, has been consolidated into a single tariff of 18 per cent over most-favoured-nation rates — among the lowest offered to any country. As argued earlier, the India-EU agreement, though significant in itself, was also part of India’s attempt to diversify exports away from its most important trading partner, the US. With the latest developments, however, it is fair to say that — both economically and geopolitically — relations have reverted to “business as usual.” From what appeared to be a second-best outcome, India has now moved decisively towards a first-best one.
Credit is due not only to Prime Minister Narendra Modi and US President Donald Trump for this renewed rapprochement, but also to the sustained efforts of the economic and diplomatic fraternity on both sides who have worked to steady what had become a fragile bilateral relationship. The agreement restores not just India’s trade position, but also the decades-old India-US diplomatic ties that had recently shown signs of strain.
On the trade front, the immediate beneficiaries are India’s garment and leather exporters. Many had seen orders for the coming year either slipping away or being renegotiated downward by 10-20 per cent as margins were squeezed to absorb higher tariffs. Similar pressures were faced by exporters of gems and jewellery and sports goods — sectors that are important for employment in the MSME ecosystem. While some firms did manage to access alternative markets, the relief was limited. Nearly 28 per cent of India’s textile and garment exports are destined for the US, which is also the largest market for Indian leather and sports goods. Diversifying such a large export share would have been difficult in the short term, even with the India-EU agreement. That agreement can now stand on its own merit as a long-term pillar of India-EU relations rather than as an emergency alternative.
The India-US deal also serves a broader strategic purpose. It helps restore normalcy to bilateral relations that have steadily deepened since the Civil Nuclear Agreement. That agreement laid the groundwork for the Quad — comprising India, the US, Australia and Japan — which is part of a wider effort to promote stability in the Indo-Pacific, a region central to global trade and diplomacy. In this sense, the renewed economic understanding contributes to a measure of geopolitical stability at a time when global alignments remain unsettled following the end of the Cold War. India will now be central to any new cold war that emerges in which economics will be an integral part, and Delhi’s partnership here will depend on its economic as well as military strength.
A third area likely to benefit is India’s IT sector. Services exports have been crucial in keeping India’s balance of payments under control, and there were concerns that a deterioration in Indo-US relations could adversely affect IT exports — a critical component of services trade. The US remains India’s largest IT partner and the principal destination for India’s outward FDI. Beyond the EU, India’s most significant technology partnerships are also centred on the US. Given the close link between FDI inflows and technology transfer, improved bilateral relations raise the likelihood of sustained investment flows.
There is also a longer-term possibility. With strengthened trade ties with both the US and the EU, India now has an opportunity to emerge as a credible “China-plus-one” alternative — provided it continues to invest in skills and domestic capacity. Combined with India’s strengths in software and services, the Subcontinent is likely to remain central to global technology and trade in both goods and services. But to view the India-US agreement merely as a trade deal would be an oversimplification. The new geopolitics has a distinct economic tilt, which we now call geo-economics. The two trade deals allow India to be an important player in the unfolding geo-economic game this century.
The writer is visiting professor, Shiv Nadar University
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