As the clock ticks toward President Donald Trump’s August 1 deadline for new reciprocal tariffs, India and the United States are in the final, intense phase of negotiations for an interim trade deal. While the immediate focus is on tariff concessions and market access, the long-term economic and strategic implications, potentially running into billions of dollars, are at the forefront of India’s cautious approach.

The Ministry of External Affairs (MEA) confirms that “negotiations are on,” with both sides striving to “iron out issues.” The US is reportedly considering reducing tariffs on Indian goods to below 20 per cent, a significant departure from the 26 per cent “Liberation Day” tariff initially announced by Trump in April. This potential reduction could provide India a crucial competitive advantage, particularly against countries like Vietnam, which now faces a 20 per cent tariff after its recent deal with Washington.

The Unyielding Red Line: Dairy and Agriculture’s Multi-Billion Dollar Shield

At the heart of India’s guarded posture are its agriculture and dairy sectors, deemed non-negotiable “red lines” by New Delhi. The US has persistently pushed for greater market access for its agricultural products, including genetically modified (GM) crops, and dairy. However, India’s resistance is rooted in deep socio-economic and cultural sensitivities, with multi-billion-dollar ramifications.

An analysis by the State Bank of India (SBI) estimates a catastrophic annual loss of approximately $12.3 billion (Rs 1.03 lakh crore) for Indian dairy farmers if the sector were to open to US imports. This projection underscores the vulnerability of India’s largely small-scale dairy industry, which supports the livelihoods of an estimated 80 million individuals and contributes significantly to the nation’s Gross Value Added (GVA), equating to an estimated $90-$108 billion annually. A 15 per cent drop in milk prices, as predicted by SBI, would devastate the rural economy.

Beyond economic concerns, India’s stance is shaped by cultural and religious objections to US dairy production practices, which often involve animal-derived feed. New Delhi insists on stringent certification ensuring imported dairy products come from cows not fed animal-based products, a requirement that directly conflicts with common US practices and reflects a broader commitment to food safety and traditional farming methods. The push for GM crops also raises serious long-term concerns about biosafety, biodiversity, and the potential for market disruption for India’s largely organic farming ecosystem.

The “Trump Playbook”: Avoiding a Skewed Deal

Trade experts, notably Ajay Srivastava of the Global Trade Research Initiative (GTRI), have strongly cautioned India against succumbing to what he terms “Trump’s phone-based deals,” referencing recent agreements with Indonesia and Vietnam. In these instances, Trump announced sweeping concessions from partner nations following private phone calls with their leaders, often exceeding what their official negotiators had agreed upon.

Srivastava warns that this “A++” outcome, where the US publicly claims duty-free access for its goods and significant purchase commitments without formal documentation, could leave India in a highly asymmetrical and disadvantageous position. For instance, while Indonesia reportedly agreed to certain concessions, Trump announced that US exports would face zero duty while Indonesian goods would incur a 19 per cent tariff in the US, along with commitments for $15 billion in US energy, $4.5 billion in agricultural products, and 50 Boeing jets. Similarly, Vietnam quickly disputed Trump’s claim of a 20 per cent tariff on its exports to the US, stating they had only agreed to 11 per cent.

This pattern suggests a risk for India: its negotiators might secure “A-level” concessions, only for Trump to announce far more beneficial terms for the US after a direct call with Prime Minister Modi, potentially without a jointly signed, written agreement. Such a scenario could undermine India’s negotiating leverage and commit it to terms that are not in its long-term economic interest.

Beyond Agriculture: Tariffs, Services, and Geopolitical Undercurrents

While agriculture and dairy are significant sticking points, other sectors are also under intense negotiation. India is pushing for the removal of additional tariffs on its steel and aluminum exports, currently at a hefty 50 per cent, and seeking eased tariffs on its automotive sector (25 per cent). Conversely, the US aims for lower tariffs on products like walnuts (currently 100 per cent) and almonds. Indian importers, anticipating a reduction in duties, are already delaying customs clearances for dry fruit shipments, signaling the market’s sensitivity to the ongoing uncertainty.

The broader strategic context of the deal cannot be ignored. This interim agreement is a steppingstone towards the US-India COMPACT initiative, with an ambitious target of doubling bilateral trade to $500 billion by 2030. However, geopolitical tensions, including Trump’s threats of additional tariffs on BRICS nations over policies like exploring de-dollarization, add a layer of complexity. Experts warn that rushed deals might not align with World Trade Organization (WTO) standards, creating further legal and economic complications.

Niti Aayog, India’s policy think tank, has advocated for a services-oriented trade deal with the US, emphasizing sectors like IT, financial services, and education, and pushing for improved visa access for Indian professionals. This highlights India’s strategic vision to leverage its strengths in the knowledge economy, a sector less vulnerable to direct import competition.

The Final Stretch: A Cautious Optimism

Commerce Minister Piyush Goyal has reiterated that India will not negotiate under pressure or based on deadlines, accepting a deal only when it is “fully finalized, properly concluded and in the national interest.” This firm stance, despite the August 1 deadline, underscores India’s commitment to a balanced outcome that protects its farmers and industries.

The current talks are crucial. A “mini-deal” is reportedly being considered, potentially excluding the most contentious issues of agriculture and dairy for a later, more comprehensive agreement. However, the broader business community remains in a “wait-and-watch” mode, with reports of delayed orders and investment decisions as clarity on tariff rates remains elusive. Indian manufacturers and exporters, particularly in electronics, textiles, and seafood, are experiencing a slowdown, as global buyers anticipate the outcome of these high-stakes negotiations.

The long-term implications for India’s economic sovereignty and the welfare of millions of its citizens hinge on the prudence and resolve of its negotiators in these final days. Avoiding a deal that compromises core national interests for short-term gains, especially one dictated by “phone-based” promises, will be critical for India’s sustainable growth and its position in the global trade landscape

Related posts:

Beyond Tariffs: U.S.-India Trade Talks Test New Delhi’s Strategic Trade Vision Trump Announces Sweeping Tariffs on Imports, Citing Trade Disparities with South Asia and Beyond Bangladesh’s $67 B Budget Focuses on Inflation Control and Renewable Energy, Faces IMF and Transparency Hurdles Global Growth Outlook Darkens, But South Asia Defies Gloom with Strong Momentum