Opinion Beyond mangoes and motorcycles: Can India Gain from the US COMPACT?

The US Census Bureau recorded $190 billion in trade between India and the US in 2023, reflecting a steady growth. The Office of the US Trade Representative estimated that in 2024, goods trade was $129.2 billion, with US exports to India reaching $41.8 billion (a 3.4 percentage increase from 2023) and Indian exports to the US reaching $87.4 billion (a 4.5 percentage increase) resulting in an increasing commodity trade deficit for the US. India enjoys a surplus mainly due to its labour-intensive cheaper commodity exports to the US over the high-value capital-intensive goods imports from the US — a model that may not be sustainable for the longer term.

Another reason the US has limited access to India’s market is high tariff barriers. The average applied most favoured nation (MFN) tariffs on agricultural products are 5 per cent in the US but a steep 39 per cent in India. India imposes a much higher tariff on US-made motorcycles, than what US levies on Indian motorcycles. These tariff disparities and the domestic pressure to reduce the trade deficit through enhanced market access play a significant role in the US’s interest in the pact. The imbalances in tariff rates, especially in agricultural products, are mainly due to the fundamental differences between these countries in terms of supporting their domestic market, though the levels of support for farmers in the US are substantially high and were at unprecedented levels from 2018 to 2020. Therefore, the low rate of tariffs for agricultural products is not surprising considering their high level of income support to farmers and the emphasis on export expansion.

Thus, tariff reductions could hurt India’s domestic market. As trade grows, the accord must favour India’s high-value exports rather than simply increasing US market access. If the deal benefits US industrial and agricultural exports, India’s trade surplus, foreign exchange reserves, and agriculture could suffer. India exports mangoes and pomegranates, while the US dominates in industrial, metal, and consumer sectors, creating concerns about reciprocity and India’s position as a low-margin supplier in a US-dominated high-value trade scenario.

The resilience of Indian industries against US corporate rivalry is a concern. Under the initial trade agreement, India reduced tariffs on US bourbon, motorbikes, ICT products, and metals, sectors where US companies have a competitive advantage. However, India’s growing market access is largely for agriculture, which has major implications for Indian producers. Reducing trade restrictions could increase US product sales in India, hurting MSMEs and major enterprises. Sectors such as textiles, automobiles, electronics, and consumer products risk losing market share if US corporations use lower tariffs to import cheaper goods into India.

The challenge is both economic and strategic. If rising US imports are not balanced by equal investment in Indian industries, India could face industrial stagnation, job losses, and supply chain disruptions. Trade agreements should be slow and meticulous to avoid long-term harm to domestic sectors.

COMPACT encourages greenfield investments, but existing patterns are worrying. Indian firms are investing $7.35 billion in US aluminium, steel, battery, and medical facilities, generating 3,000 US jobs. However, US corporations have not committed to investing in high-value Indian sectors.

To maximise the benefits of COMPACT, India needs US investments in its technology and industrial sectors, including joint research projects, information transfer agreements, and direct investments in semiconductors, artificial intelligence, and renewable energy. Without these guarantees, India risks neglecting technical advancement while continuing to export talent and capital.

India imports capital-intensive, high-margin products such as aircraft, machinery, and medical devices and exports labour-intensive goods such as textiles, leather, and processed foods. Importing capital-intensive and exporting low-margin products, India risks becoming locked in an unfair economic system without high-value exports. Additionally, the US’s “push” for more defence agreements may cause a large capital outflow and drop in trade surplus. India’s export portfolio should include more high-value products to boost quantitative and qualitative trade growth.

The US–India COMPACT is a complex but potentially beneficial economic cooperation. According to the US Department of Commerce, the total bilateral trade in goods and services increased by 34.3 per cent between 2018 and 2023, from $141.5 billion to $190.1 billion, which raises questions about a five-year expansion to $500 billion. Policymakers must ensure trade liberalisation is balanced.

Varma is a faculty at IIM Ahmedabad and Banerjee is an academic. Views are personal