India and the US are on the cusp of finalising an interim trade deal ahead of the 9 July deadline to avert punitive tariffs from Donald Trump – a high-stakes agreement that could remove emerging irritants in the New Delhi-Washington relationship if successful.
The US president has repeatedly teased a “big, beautiful” trade deal with India after slapping it with a 26 per cent tariff rate earlier this year.
India is banking on a potential deal with its largest trading partner to boost bilateral trade from $190bn to $500bn by 2030.
The two nations are racing to clinch a deal, which would be Washington’s first with a major trading partner after the UK.
Cracking a timely deal seems crucial not only to remove hurdles in trade but also to ease diplomatic tension between Mr Trump and his Indian counterpart Narendra Modi. Their once warm relationship has appeared frosty since the president claimed credit for getting India and Pakistan to reach a ceasefire following a brief military confrontation in May.
Although Mr Modi’s government has sought to project warm ties with Mr Trump, New Delhi has publicly objected to his claim that he used the lure of trade deals with India and Pakistan to get a truce deal through.
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In the latest statement on the topic, White House press secretary Karoline Leavitt reaffirmed Mr Trump’s claim that a deal with India was near completion.
“Yes, the president said that last week, and it remains true. I just spoke to our secretary of commerce about it. He was in the Oval Office with the president," she said. “They are finalising these agreements and you will hear from the president and his trade team very soon when it comes to India.”
Her statement came a day after the Indian side signalled “very big red lines” on protections for its farming and dairy sectors but said they would “love to have an agreement, a big, good, beautiful one”.
The talks started in earnest but early optimism about reaching a deal faded after the negotiations stalled on disagreements over US tariffs on auto components, steel and agricultural goods.
Mr Trump earlier said the “very big” trade deal would “open up India”. He later added that his administration was “looking to get a full barrier dropping, which is unthinkable”.
Agriculture is a sensitive topic for India. The sector employs more than 80 million people who would be prepared to take to the streets in protest if a deal was perceived to be detrimental to their interests.
India has so far managed to shield its farmers from foreign competition by imposing heavy import tariffs up to 150 per cent.
Aside from hurting farmers economically, opening up agriculture to foreign players would be a political problem for the Modi government which had to deal with nationwide protests after it passed a set of agrarian reform laws in 2020. It was forced to withdraw the laws in the face of growing anger among farmers.
The American side is pushing for greater access to the Indian agricultural and dairy markets, especially for genetically modified crops like maize, soybean and corn crops, as well as cattle feed, dairy products, apples, almonds, and walnuts.
India has never liberalised dairy in any trade deals, including the one with the EU.
“Agriculture and dairy have been among the very big red lines, where a high degree of caution has been exercised,” Indian finance minister Nirmala Sitharaman said this week.
While the previous administration of president Joe Biden secured greater access for specialty agricultural products such as nuts and cranberries, India would remain cautious about any deal that could undermine its farmers.