India Eyes Duty-Free Imports to Boost Trade with U.S.
India is actively pursuing a bilateral trade agreement (BTA) with the United States, signaling a willingness to consider duty-free imports across various sectors. This initiative aims to expedite the agreement’s completion by fall 2025, potentially removing the 26% reciprocal tariff that has been in place since April 9. The move is part of India’s broader strategy to enhance trade relations and achieve a bilateral trade target of $500 billion by 2030.
Duty-Free Imports Under Consideration
Sources indicate that India is open to offering duty-free imports from the U.S. in sectors covered by its Production Linked Incentive (PLI) schemes. Currently, the PLI program includes 14 industries, with a budget allocation of ₹1.97 lakh crore. Key sectors involved are mobile phones, drones, textiles, automobiles, and pharmaceuticals. However, any duty-free access will be contingent upon strict rules of origin, requiring a 30-40% value addition and modifications in tariff headings.
The Indian government is in the midst of inter-ministerial consultations to explore what can be offered under the BTA. A source familiar with the discussions stated, “All options are open,” emphasizing that zero-for-zero tariffs could significantly benefit the involved sectors. The stringent origin requirements aim to prevent third-country products from entering India through the U.S. at reduced or zero duties.
Industry Input and Negotiation Timeline
Government departments are actively seeking input from various industry stakeholders regarding potential tariff reductions. Industry associations and export organizations have urged the government to expedite BTA negotiations, with the initial phase expected to conclude within six months. The urgency of these discussions reflects the Indian government’s commitment to enhancing its trade landscape and fostering economic growth.
Prime Minister Narendra Modi and U.S. President Donald Trump discussed the BTA during a meeting in February, highlighting the importance of this agreement. The Indian government aims to leverage its competitive advantages in labor costs to negotiate favorable terms for duty benefits in sectors where it excels.
Strengthening Global Competitiveness
Experts believe that India’s robust industrial base, bolstered by initiatives like the PLI, positions the country to embrace lower tariffs. Bipin Sapra, a tax partner at EY India, noted that offering zero-for-zero tariffs would enable India to capture a larger share of the U.S. market in sectors where it seeks to boost exports. This strategy aligns with the “Make in India” initiative, which aims to enhance domestic manufacturing capabilities.
U.S. authorities are expected to enforce strict value addition requirements to prevent goods from third countries from entering the Indian market through the U.S. Certain sectors may require higher value addition levels to meet these standards. Historically, trade agreements signed by India necessitate approximately 35% value addition, ensuring significant transformation of goods before they can benefit from reduced tariffs.
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