BREAKINGVIEWS-India settles for least bad option on US trade

By Shritama Bose

MUMBAI, Feb 3 (Reuters Breakingviews) - India's trade pact with the U.S. leaves much to be desired but will ease a crushing overhang on the rupee. Ten months into President Donald Trump's trade war, the South Asian country is emerging bruised but at least more integrated into the global economy.

Washington is slashing its tariff on imported Indian goods to 18% from 50% in exchange for a promise from Prime Minister Narendra Modi's administration to halt buying Russian oil, Trump announced late on Monday, adding that India has committed to buy $500 billion of U.S.-made goods. Modi's own post did not mention what India has conceded, but it appears to fulfil Washington's demand for lower Indian tariffs on sectors like autos and includes petroleum and defence goods.

Still, even by Trump's standards, the arrangement is short on details. Washington's approach appears slapdash ahead of an expected U.S. Supreme Court ruling on the lawfulness of Trump's trade regime. As of Tuesday afternoon India time, there was no timeline for when the lower tariff would take effect. The purchasing commitment Trump says India has agreed to also seems absurd: the U.S. currently supplies just $46 billion of India's $690 billion annual imports, of which only $192 billion is fuel.

Nonetheless, the broad contours were positive enough to support Indian markets: the rupee INR=IN, the worst-performing Asian currency of 2025, moved over 1% higher to 90.37 against the U.S. dollar, while the benchmark Nifty 50 Index .NSEI of stocks rose 5%. The revised tariff imposed by India's largest trading partner is lower than the 20% Washington charges shipments from Vietnam and Bangladesh. That restores a potential advantage for India that global investors first expected back in April. It will also ease fears that the Trump administration will turn hostile on India's IT services, a much larger-value export to the United States.

New Delhi may eventually rue giving up autonomy on its global energy purchases, a pillar of its attempt to maintain a non-aligned foreign policy. But in the short term, the U.S. pact removes the biggest external roadblock to India's growth and will reduce the need for the government to borrow more to prop up employment-intensive industries like textiles. One day, India might even thank Trump for spurring it to shore up its trade ties. Including a deal struck last week with the European Union after years of delays, Modi has secured agreements with its two largest markets together taking 36% of Indian exports, BNP Paribas analysts note. That's some consolation for a bullied partner.

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CONTEXT NEWS

U.S. President Donald Trump on February 2 said Washington will slash its tariff on Indian goods to 18% from 50% in exchange for India halting purchases of Russian oil and lowering trade barriers.

Trump said Indian Prime Minister Narendra Modi also committed that India would buy American goods worth more than $500 billion, including energy, coal, technology, agricultural and other products. Trump did not provide a timeline for those purchases, nor for when the lower tariff would go into effect.

Modi announced the revised U.S. tariff in a separate post on social media platform X, without mentioning any concessions made by India.

The U.S. deal addresses Washington's ask to cut high Indian tariffs on sectors like autos, petroleum, defence, electronics, pharma, telecom products, aircraft and some agriculture products, and that talks for a more comprehensive deal with more sectors are to continue, an unnamed Indian government official told Reuters on Tuesday.

The Trump administration has been racing to complete framework trade deals with major trading partners before the U.S. Supreme Court rules on whether to strike down Trump's "reciprocal" tariffs under the International Emergency Economic Powers Act.