Opinion India-US agree on a big deal, it marks a welcome shift to freer trade, a domestic reform agenda awaits

It would be apt to describe what has transpired over the past few days in the realm of foreign relations and trade as one of those “weeks where decades happen”. Quick on the heels of the conclusion of India’s long drawn out trade negotiations with the EU, New Delhi and Washington have finally agreed on a trade deal, with leaders of the two countries making it official after a phone call on Monday. With this agreement — it comes after months of uncertainty when relations between the two countries appeared to have plummeted to their lowest levels in recent times — the Indian economy is now more closely integrated with the western world, pointing towards the convergence of interests in a world marked by geopolitical uncertainty.

Under the deal, the US will lower the tariff rate on Indian exports from 50 per cent to 18 per cent effective immediately. Tariffs on India have now fallen to levels that place the country in a favourable position when compared to its export rivals such as Vietnam, Malaysia, Thailand, Bangladesh, Indonesia and China. The full details of the deal are yet to be released — there is not enough light on how the contentious issue of oil purchases will play out. But, India has been steadily reducing Russian oil imports, while increasing crude imports from the US. As reported in this paper, US’s share in India’s oil imports rose to 7.48 per cent between April and October this year, compared with 4.43 per cent over the same period last year. Investors are ebullient — the BSE Sensex opened the day 4.5 per cent higher. The ending of uncertainty around the deal also brightens the prospects of more foreign direct investment into the country. The China plus one strategy, which seemed to have been adversely affected by higher US tariffs, could now again be in play. Foreign portfolio investors who had taken $18.9 billion last year from the markets, are also likely to be impacted. This could address concerns over capital inflows and the rupee. Currency markets have responded positively to the announcement of the deal, with the rupee strengthening during early trade.

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The string of trade deals signed by the Narendra Modi government point to a heartening trend: The walls of protectionism are coming down. This shift towards freer trade, which seeks to integrate India more closely with global supply chains, is enormously welcome. However, now is not the time to sit back and be complacent. The government must press ahead with not only exploring the possibility of entering into other trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), but must also move forward forcefully on an ambitious domestic reform agenda that awaits.