In all the copious analyses of the India-US trade deal, what is missing is a clear understanding of the premise. First, this is not a free trade deal like with the UK and the European Union. Second, this is a deal with a superpower which is exercising its might unilaterally. The penalty is meted out before negotiation with a clear, explicit intent to change the nature of the trading relationship between the US and its partner. Third, no country in the world is spared from American tariffs.
Most of India’s competitors face a tariff of 19 per cent or higher. Any judgment on the outcome must acknowledge that this is not a traditional trade negotiation. Under the circumstances, India has done very well.
Of course, the premise makes it difficult for the government to negotiate and for the public to digest the outcome. Indian officials are not used to making concessions on sensitive subjects like agriculture, not even in free trade agreements (FTA). Any liberalisation, even for industry, is usually staggered and often with quotas for duty-free imports (see what India has agreed on the automotive sector with the EU and UK).
That the US endgame would stop at a reasonable high tariff (and nowhere near zero) was also known, which would have made negotiating harder. Public opinion is always sceptical about acting under the influence of a foreign power. India’s long history of foreign occupation is embedded in our DNA. Sovereignty and autonomy matter.
That explains some of the brouhaha over Russian oil. Is US President Donald Trump’s declaration that India has committed to stop buying Russian oil an infringement of our policy sovereignty? Again, this is an issue clouded with misunderstanding. The fact is that India did not buy much Russian oil (under 1 per cent of our imports) until the war with Ukraine broke out in 2022. India switched to Russian oil because it was cheaper.
Why was it cheaper? Because the Western powers had decided to place an upper price cap on Russian oil to reduce its profitability and hence reduce its contribution to the war effort. The West would not buy Russian oil, but someone had to, otherwise global oil prices would have shot up. India and China stepped in. Let’s be clear, there was no masterful strategic calculation in this—it made commercial sense and therefore, was the right thing to do.
Also read: How Russian oil, China and Trump tariffs reshaped the India-US trade deal
Donald Trump’s economics is political
Now, the economics of Russian oil have changed for India. The additional 25 per cent tariff that a different US administration (from the one in 2022) was imposing on India for buying Russian oil extracted a huge cost on the rest of the economy, particularly labour-intensive export sectors like textiles. Commercial wisdom warrants a change of course. But in 2022 and now in 2026, India’s purchase of Russian oil was dictated by Western policy decisions. Indeed, the purchase of oil was never a bedrock of India’s longstanding ties with Russia. In fact, India should have given up the purchase of Russian oil months ago.
From a purely economic lens, it makes sense to give up some amount of policy autonomy for huge economic benefits. That is the logic of trade liberalisation. The benefits of free trade outweigh protection. They also outweigh having the protectionist card in your hand. When India signed up to the World Trade Organization (WTO) three decades ago, it gave up policy autonomy by agreeing to cap its tariffs, adhere to international trade norms and abolish local content requirements. Each time it has signed an FTA with any country/group, whether the EU/UK now or ASEAN/Japan/Korea earlier, it gives up the autonomy to unilaterally raise tariffs or impose other forms of protection.
Trump’s economics is political. For long, India has suffered because its economics was political. India’s experience with high tariffs and other forms of protection is a warning for other countries on how disastrously this can end. India needs to stick to good economics. Opening up some of its protected sectors is good for the economy’s efficiency. In agriculture, the opening has happened in areas where India is already an importer, so it won’t affect the farmers’ interests. In the industry, the bargain actually allows Indian labour-intensive sectors to scale up and beat competition from Bangladesh and Vietnam. This is critical for decent jobs at the lower end of the skill spectrum.
In any case, it is time that both industry and agriculture are made competitive by global standards. The Government has done the right thing by signing an FTA with the EU and a good trade deal with the US (the two largest markets in the world). Now, with an aggressive deregulation drive and a renewed attempt at agriculture reform, it should unleash India’s considerable entrepreneurial energy to capitalise on the opportunity. And, for good measure, fast-track a liberalised oil exploration programme. Dependency is never good for autonomy.
The author is Chief Economist, Vedanta. He tweets @nayyardhiraj. Views are personal.
(Edited by Saptak Datta)