India, US Finalise Interim Trade Deal: GM Crops Rejected, Tariffs Realigned – What It Means For Exports, Innovation And Farmers.
India, US Finalise Interim Trade Deal: GM Crops Rejected, Tariffs Realigned – What It Means For Exports, Innovation And Farmers.
India and the United States are set to sign an interim trade agreement this week, covering key areas such as agriculture, processed foods and industrial tariffs. The deal has been finalised after months of negotiations between both countries.
India has agreed to reduce tariffs on certain U.S. agricultural imports, including apples, nuts like blueberries and blackberries and selected processed food products. However, New Delhi has made it clear that there will be no agreement on genetically modified (GM) crops. According to officials, GM crops remain a red line due to domestic concerns and upcoming trade talks with the European Union (EUFTA).
The deal includes a tariff structure where Indian goods entering the United States will face an average tariff of 11.5%, while U.S. goods entering India will face a 7% tariff.
India has also refused a blanket tariff approach on automobiles. Instead, it has asked for separate slabs based on vehicle type and category. The United States is said to have accepted this proposal.
There is also no agreement on dairy products. The United States had pushed for broader access to India’s dairy market, but India has not accepted this, citing the potential impact on small farmers and rural incomes. Only processed dairy items will be allowed under the agreement.
The deal comes at a time when the US is revising its trade approach with several countries. President Donald Trump has announced higher tariffs on exports from the European Union (EU), Japan, South Korea, Mexico and other nations, starting August 1. India is seen as a key trade partner in this changing environment.
Key aspects of the agreement:
Tariff adjustments: Indian exports to the US will face an average tariff of 11.5%, while US goods entering India will incur an average tariff of 7%. This reflects a product-specific approach, rather than across-the-board cuts, accepted by the US side, according to Organiser.
Rejection of GM crops: India has maintained its ban on GM crops and rejected their inclusion in the deal, a position reportedly accepted by the US after extensive negotiations.
Limited agricultural market access: While India has granted restricted access for some agricultural products, it has stood firm on safeguarding its dairy sector by only permitting processed food items.
Auto sector simplification: The agreement establishes a unified tariff structure for all automobile categories, streamlining trade regulations for American car manufacturers.
Potential implications
1. Exports
India’s export advantage: The current US tariff framework, with higher duties on most Asian countries compared to India, positions India to gain a competitive edge in 22 out of 30 key product categories it exports to the US.
Targeting US market share: India could potentially capture 2% of the US chemical import market if it secures a tariff rate lower than Singapore’s current 25%, adding 0.2% to India’s GDP. Further gains could be made by targeting market share from countries like Japan, Malaysia, and South Korea, which face higher tariffs.
Apparel sector boost: Increasing India’s share in the US apparel market by 5% could add another 0.1% to India’s GDP, according to the same report.
Diversification beyond US: Even if the deal is not as favorable as hoped and higher US tariffs are imposed, India has avenues to diversify exports, particularly in services, which are projected to reach $387.5 billion in 2024-25.
ASEAN and other Asian markets: India is reviewing its FTA with ASEAN countries to address tariff gaps and prevent dumping of goods from countries like China via ASEAN partners. India could also increase shipments of chemicals, agricultural goods, and other products to Asian nations facing elevated US tariffs.
2. Innovation
Potential for tech partnerships: The agreement likely covers areas like digital trade and data flows, fostering potential for collaboration and innovation, particularly in sectors like defence and critical technologies such as semiconductors and space technology.
Precision agriculture adoption: Increased competition due to reduced tariffs could incentivize farmers in both countries to adopt new technologies and practices to stay competitive, including solutions offered by companies like Farmonaut that focus on precision agriculture and AI-driven advisory systems, notes Farmonaut.
Supply chain innovation: The shift in tariffs could prompt restructuring of agricultural supply chains, potentially leading to new partnerships and trade routes between the US and India, driving innovation in areas like blockchain traceability.
3. Farmers
Protection for dairy and agriculture: India’s firm stance against full market access for US dairy and GM crops aims to protect its large rural economy and millions of small farmers from the potential negative impact of cheaper, subsidized imports.
Vulnerability to subsidized imports: The significant subsidies provided to American farmers could lead to lower-cost US produce flooding the Indian market, impacting Indian farmers who face higher input costs and lack similar government support.
Potential income losses in dairy: An SBI analysis estimates that opening the dairy sector to US imports could lead to a 15% drop in domestic milk prices, causing an estimated income loss of Rs 1.03 lakh crore annually for Indian dairy farmers and a loss of Rs 51,000 crore to India’s gross value added (GVA) in the dairy sector.
Importance of tariffs and subsidies: India’s high tariffs and subsidy programs, such as Minimum Support Prices (MSP), are crucial for safeguarding farmer livelihoods and ensuring food security, making them non-negotiable in trade negotiations.
Opportunities for high-value agri-products: Easing of Sanitary and Phytosanitary (SPS) restrictions could open up opportunities for India to expand its exports of high-value agri-products like organic rice, spices, and tea to the US, potentially increasing exports beyond $3 billion.
The interim trade deal is seen as a stepping stone towards a more comprehensive Bilateral Trade Agreement (BTA). While this interim deal addresses some immediate concerns, key issues such as wider market access for agricultural products and intellectual property rights may be addressed in the longer term negotiations for a full-fledged BTA.
