Agriculture is a sensitive sector in India, and the auto sector lacks a level-playing field compared to other countries. Reduction of tariffs here and influx of imports would hit livelihoods.
As India’s Commerce Minister Piyush Goyal concluded nearly a week-long visit to the US on March 9, stakeholders back home remained on edge as sensitive sectors like automobiles and agriculture were the focus of the trade talks.
While India is trying to negotiate a balanced trade deal amid the looming threat of reciprocal tariffs, stakeholders are worried about the country’s ability to wrangle concessions given President Donald Trump’s claim on March 7 that New Delhi has “… agreed to cut their tariffs way down now because somebody is finally exposing them for what they have done.”
An industry official, on condition of anonymity, told Moneycontrol that this time around India seems to be “softer towards Trump’s demand,” which includes lowering tariffs on agriculture and automobiles.
“During Trump 1.0, we were more aggressive with our trade policies. India has been a little soft in terms of duties given that we have already reduced them on US products such as bourbon whiskey and certain automobiles even before Trump’s statements,” the official said.
A second industry official agreed that India has been less vocal than nations such as China and Canada about Trump’s threats regarding trade and tariffs.
During his visit, Goyal is said to have met US Trade Representative Jamieson Greer and US Secretary of Commerce Howard Lutnick, among others.
Biswajit Dhar, Distinguished Professor, Council for Social Development, says that given that Trump has mentioned agriculture and automobiles while talking about reciprocal tariffs, there will be a lot of pressure on India to lower duties in these two sectors.
Under Trump 1.0, India retaliated by raising tariffs on US goods such as almonds and apples in response to America imposing higher levies on Indian steel and aluminium.
Canada and China’s retaliation came after the US imposed steeper duties on them; however, Trump is yet to reveal what duties he will specifically impose on India even as he continues to term the country a “tariff abuser.”
In a tit for tat, Canada has imposed 25 percent tariffs on American goods in response to Trump slapping 25 percent duties on nearly all Canadian goods, and a 10 per cent tariff on Canadian energy.
Beijing too said it would levy additional tariffs of up to 15 percent on certain US goods from March 10, and restrict exports to 15 American companies.
Engineering Export Promotion Council (EEPC) India Chairman Pankaj Chadha feels “India is being quiet, but that does not mean we are not being watchful. We are trying to create a conducive environment. We don’t want to get into a street fight, but will not shy from one if required.” An advisory body, EEPC is a wing of the Ministry of Commerce. Chadha added that India will look at its own benefits too.
Trump’s decision to impose higher levies on Canada and Mexico despite having a trade deal with them has also sparked concerns about the efficacy of India’s attempts to negotiate a deal with the US.
The Global Trade Research Initiative (GTRI), an Indian thinktank, has strongly advised against brokering a deal with the US.
“The US wants to negotiate a broad trade agreement covering all key aspects, rather than engaging in sector-specific talks. GTRI strongly advises against this since a comprehensive trade deal would open the door to a host of US demands, not just on tariff, but also on government procurement, agricultural subsidies, patent laws, and unrestricted data flows — all of which India has consistently opposed,” the thinktank said in a note on March 8.
Concerns about negotiating a trade deal with the US also emerges from Trump’s history of disregarding such pacts, evident from his decision to violate the terms of the US-Mexico-Canada free trade agreement (FTA), which he himself finalised in 2019, and slap 25 percent tariffs on imports from the two countries.
The decision to negotiate a bilateral trade agreement (BTA) between India and US was taken during Prime Minister Narendra Modi’s visit to the US on February 13.
India and the US last month set a new goal, “Mission 500”, aiming to more than double their bilateral trade to $500 billion by 2030, and to negotiate the first tranche of a mutually beneficial, multi-sector BTA by fall 2025.
At $91 billion in 2024, India ranks 10th among the top exporting nations to the US, with Mexico, China, and Canada occupying the first three positions. The US is India’s top export destination and its fourth-largest source of imports.
America has already indicated that rather than engage in sector-specific talks, it intends to negotiate a broad trade agreement with India covering all key aspects.
Agri and auto
Perhaps the biggest concern about negotiating a trade deal with the US flows from Trump’s emphasis on two key sectors where India should lower tariffs — automobiles and agriculture.
Media reports have indicated that while the US wants India to entirely eliminate import duties on cars through the proposed trade deal, India has reportedly agreed to reduce tariffs on certain US imports, such as apples, walnuts, and cranberries.
Dhar explains that India has avoided lowering duties on automobiles and agricultural goods through FTAs in the past given the nature of these sectors.
While agriculture is a sensitive sector for India, the auto sector does not have a level-playing field compared to other countries. Reduction of tariffs and influx of imported items would impact livelihoods, a concern that representatives of India’s auto industry have tabled, said Dhar.
Not too long ago, in 2021, India dropped out of the Regional Comprehensive Economic Partnership (RCEP) FTA involving the Association of Southeast Asian Nations (ASEAN), citing its negative effects on farmers and the dairy sector.
GTRI Founder Ajay Srivastava batted for excluding agriculture, passenger cars, and other sensitive sectors from trade talks between India and the US citing an example from the late 1980s, when Australia reduced car import tariffs from 45 to 5 percent, leading to the collapse of its domestic car industry.
“India must avoid making the same mistake as the auto sector is a third of its manufacturing GDP. India exported less than $13 million worth of passenger cars to the US, so even If the US increases tariffs on Indian cars, it won’t have an impact,” Srivastava argues.
Chadha said that while agriculture is a red line, there is scope for reduction in tariffs in the automobile sector, albeit not to zero. However, he warned: “If we cut auto tariffs for the US, then we may be forced to extend the same to the European Union through the trade deal that we are currently negotiating with them.”
When it comes to agriculture, Srivastava noted that tariffs on top US agricultural exports to India are already low. For instance, the tariff on almonds is Rs 35 per kg, translating to just 5 percent at the current import price of Rs 700 per kg. Pistachios face a 10 percent tariff, and ethyl alcohol only 5 percent.
Ashwani Mahajan, National Co-Convener of the RSS-affiliated Swadeshi Jagran Manch (a political and cultural organisation), also said that given livelihood concerns, India should exclude dairy and farm products from its trade negotiations with the US.
Chadha believes that India could lower tariffs on US goods such as apples, chickpeas, walnuts, among others, and use it as a part of its reciprocal playbook. “This is where we can bargain, we can go up and down on duties, that’s how we can leverage this situation by basing the trade deal on reciprocity,” he explained.
But for a tough negotiator like Trump, lowering duties on almonds and walnuts may not be enough, Dhar cautioned.
“When it comes to agriculture, I do not think Trump will be satisfied by reducing duties on any of these items. When Trump negotiated a deal with China in 2020, he expected lower tariffs on big ticket items like cereals,” said Dhar.
“India does not have the room to take out farm products when negotiating a trade deal with the US. The only sector where the US dominates globally in exports is agriculture, so that is what it wants to sell. Whenever America does a trade deal with any country they ensure that their farm exports go up, which is why in the past New Delhi wasn’t engaging with them for a trade deal,” he added.
As the US is set to impose higher tariffs from April 2 under its Fair and Reciprocal Plan on countries that levy steeper duties on American goods, and at the same time is pushing India to ease tariffs on almost all products, some are calling for a more aggressive stance from New Delhi on the proposed trade agreement.
EEPC’s Chadha, however, suggests a middle ground: “Try doing a deal first. If that fails, then we can be aggressive.”
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