Hastening a Trade Deal With the US

When US President Donald Trump announced a slew of tariffs on countries exporting goods to the US, India was among a handful of countries that moved quickly—even before the tariff schedule was announced—to try and seal a bilateral trade deal. When US Vice President J D Vance visited India recently, he said that trade talks were progressing smoothly. These are sentiments that were reiterated just days ago by US Treasury Secretary Scott Bessent.

How quickly can the two countries sign a deal? What are the sticking points?

The usual refrain that India is a “tough” country to do trade is no longer true. Well, almost. In recent years, India has signed comprehensive trade and economic deals with countries as diverse as Australia and the United Arab Emirates (UAE). Both are considered “model” deals for other similar arrangements with countries and trading unions such as the UK and the European Union (EU).

But trade deals are never easy for any country to sign on without taking domestic priorities into consideration. For India its most important and politically sensitive trading constituency is its farmers. Then there are other, equally important issues such as data localisation and giving priority to India’s own payment system, the Unified Payment Interface or UPI, a system that has revolutionised payments.

The 2025 edition of an annual report to the US President—the National Trade Estimate Report on Foreign Trade Barriers or the NTE report—has a long list of issues faced by US exporters to India. The list is not surprising and ranges from agriculture and dairy products to alcoholic beverages and from issues around domestic subsidies to localisation of data.

At one time, US insistence on India “opening up” on these goods and issues would have ensured that no deal would be signed. And until now, bilateral trade negotiations went nowhere. These will be sticking points in a deal with the US but they need not be a deal-breaker.

One way out of these issues, which may prove to be a logjam otherwise, is provided by the Australian model. When India and Australia signed the India Australia Economic Cooperation and Trade Agreement (AI ECTA) on 2nd April, 2022, India simultaneously issued a series of “side letters” to Australia on contentious subjects such as the import of wines into India and certain features of the Australian taxation system. Australia agreed to amend its tax legislation to stop the taxation of offshore income of Indian firms providing technical services to Australia. India also promised to undertake steps to resolve some sticky issues about import of Australian wines into India. These “side letters” allowed the AI ECTA to move ahead without the difficult and unresolved issues derailing it.

Something similar may be done in case of the potential trade deal between India and the US. The statements issued by the US side and India’s eagerness to conclude such a deal points towards this route to secure what is a valuable trade partnership.

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