India’s deadline to close a deal with the US is drawing to a close. But, with the two countries yet to finalise the intricacies of the free trade agreement (FTA), India may have to seek an extension to the July 9 target in order to avoid facing reciprocal tariffs by the US.
Despite senior officials from both the countries having held numerous meetings in India and the US to discuss the BTA, differences have cropped up pertaining to market access, tariff cuts as well as sectors and concessions, which may pose a challenge to concluding a mini deal by next month.
The two countries are looking to negotiate a mini-deal or a scaled-down version of the first tranche of a bilateral agreement which needs to be finalised by September.
“There should be an extension because the US hasn’t got a deal with anyone. UK is a limited deal, China is an understanding on rare-earth metal, so it is not a full-fledged deal; so the US has not yet got a proper deal with anyone,” said a source privy to information.
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With the Iran and Israel ceasefire holding, concluding tariff talks would be next on most countries’ agendas, especially with US President Donald Trump having declared deadlines to finalise the bilateral trade agreements (BTA).
Sources say the major areas of difference between the two sides are related to the US’ demand for greater access to farm and dairy goods, which India is dealing with as a “sensitive sector”. The Trump administration has been critical of India’s high tariffs on agriculture, which is about 39 per cent, much higher than the US rate of 5 per cent.
Other issues that are proving to be a bone of contention between the two countries’ trade agreement are apple, corn and soybean.
India’s biggest reluctance is accepting America’s demand to open up its market to genetically-modified crops.
In fact, India dropped out of the Regional Comprehensive Economic Partnership (RCEP) FTA involving the Association of Southeast Asian Nations (ASEAN) in 2021, due to its negative effects on farmers and the dairy sector.
“We have always protected our agriculture and dairy sectors when it comes to trade deals. Even in the deal with Britain, we kept dairy out,” said the source.
The other major hick-up has been the US’ refusal to entirely remove tariffs on steel and aluminium instead of the current 50 per cent duty imposed, and also slash 25 per cent on certain automobiles.
“The US is so far refusing to include sectoral tariffs in the talks for the deal. The BTA has to take into account these steeper duties,” the source added.
What may work in India’s favour is a ruling by two district courts in the US against the tariffs, saying they are not justified under the International Emergency Economic Powers Act.
America’s Supreme Court declined a request last week to speed-up a consideration to review the higher tariffs despite lower courts not having come to a decision on this.
How will the BTA affect India?
A research report by Crisil has said India’s BTA with the US is likely to reduce India’s goods trade surplus with the country, which stood at $41.18 billion in the financial year of 2024-25.
With the first tranche of the trade deal expected to be completed by September this year, India may be able to increase its exports in areas like smartphones, pharmaceutical products and labour-intensive items like textiles, gems and jewellery.
The report said India should be prepared to see more imports from the since India’s tariffs are much higher than the US. Bringing these down in the trade agreement is bound to benefit the US’ exporters.
India will be able to import more energy, certain agriculture products and defence equipment among others.
The US announced reciprocal tariffs on India and a host of other nations in April 2025, and then paused the increase for 90 days from April 10 to negotiate trade deals with these countries.
India's exports, however, are unlikely to see a major spike because the focus of the US administration is to reduce the trade deficit with India and most of the top exports are already duty-free.
The US is India's largest export partner.
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