India’s business community is greeting the recently declared India-United States (US) trade agreement with measured optimism, as exporters, micro, small and medium enterprises (MSMEs) and economists say the absence of a formal document and the United States’ history of revisiting trade commitments continue to cloud long-term planning, despite the promise of lower tariffs and improved market access.
The trade agreement, announced by US President Donald Trump on 02 February, lowers reciprocal tariffs on Indian exports to the US from about 25 per cent to around 18 per cent and removes a 25 per cent penal tariff linked to India’s purchases of Russian oil. In a post on his social media platform, Trump said he had a “very productive” exchange with PM Modi and described him as “one of my greatest friends and a powerful and respected leader”.
Trump’s post added that PM Modi had committed to “buy American” at higher levels, with planned purchases of over USD 500 billion in US energy, technology, agricultural, coal and other goods. On energy policy, Trump said India agreed to halt purchases of Russian oil and instead increase imports from the United States and potentially Venezuela, a shift he framed as contributing to efforts to end the conflict in Ukraine.
Reacting to the announcement, Prime Minister Modi confirmed the development in a post on X, welcoming the tariff reduction and underlining the broader significance of India-US cooperation. “Wonderful to speak with my dear friend President Trump today. Delighted that Made in India products will now have a reduced tariff of 18 per cent. Big thanks to President Trump on behalf of the 1.4 billion people of India for this wonderful announcement,” PM Modi said.
A Great Deal For India?
Interestingly, the announcement marks a thaw after months of trade tensions, during which the US had imposed a cumulative 50 per cent tariff on Indian goods, including levies linked to India’s purchase of Russian crude, which stalled earlier negotiations on a comprehensive trade agreement. Now, industry executives are positioning this deal as a reset in economic ties between the two countries, at a time when global trade remains volatile and protectionist pressures persist.
However, India Inc is yet to see an official treaty text or detailed framework outlining tariff schedules, sectoral coverage, safeguards or dispute resolution mechanisms. Exporters and trade finance firms say that until the fine print is available, businesses are unlikely to significantly alter investment or capacity plans.
“The announcement around India-US trade deals, with a baseline tariff of 18 per cent, is truly transformational for not only India but also significantly enhancing the global value chain for several products and services,” Munindra Verma, CEO of M1 NXT, said. “It is indeed a constructive step that improves market access for Indian exports and supports deeper trade engagement between the two economies. Greater predictability in trade flows can help businesses price more efficiently, plan capacity with confidence, and commit capital in a more volatile global environment.”
Yet Verma acknowledged that predictability and certainty remain central concerns for businesses. “This concern is understandable. While the political ecosystem could have been advised better, trade and businesses thrive on predictability and certainty,” he said, adding that exporters were seeking a more stable environment for India–US and global trade.
The caution shows a broader sentiment across the Indian industry that political announcements, while directionally positive, need to be backed by legally binding commitments. Several exporters privately point to the United States’ tendency to revise trade terms or impose tariffs even after agreements are in place, arguing that this risk must be priced into long-term strategies.
Recently, Trump raised tariffs on South Korean imports to 25 per cent after accusing Seoul of “not living up” to a trade deal reached in 2025.
The United States is India’s largest merchandise export destination, accounting for roughly one-fifth of total exports, according to economists. Lower tariffs are expected to enhance the competitiveness of Indian goods in the US market, particularly in labour-intensive and manufacturing-oriented sectors.
Historically, India–US trade has seen strong demand in labour-intensive, technology and manufacturing-centric segments. Verma said sectors such as textiles, automobiles, auto components, engineering goods, electronics, technology services and agricultural products were likely to benefit from improved market access, lower tariff rates and better demand visibility in the US market. “These sectors already have manufacturing depth and an expanding MSME base, which positions them well to scale responsibly,” he said.
Notably, Indian MSMEs, particularly in the textiles sector, bore the brunt of US tariffs, suffering significant losses. Now, Pushkar Mukewar, founder and CEO of Drip Capital, also described the agreement as positive for exporters, while underscoring the importance of predictability.
The India–US FTA is positive and offers some relief to our exporters because it lowers friction in one of India’s most important consumption markets. It improves predictability, which is what exporters need to price, plan capacity, and commit capital in a volatile global environment,” Mukewar said.
Mukewar said consumption-led sectors with high US exposure stood to gain the most, as tariff relief directly improves pricing and buyer confidence. At the same time, he cautioned that discretionary and non-essential categories may still face demand volatility, with US buyers remaining cautious, while sectors with heavy compliance requirements would continue to feel pressure beyond tariffs.
On concerns about the durability of the agreement, Mukewar said exporters were realistic. “The risk always exists. However, our exporters are realistic about it. What this deal does is reduce uncertainty in the near term and reopen commercial conversations,” he said.
Textiles, gems and jewellery, and other consumption-linked exports are widely seen as among the biggest beneficiaries. Suketu Shah, CEO of Vishal Fabric, said the agreement came after a prolonged period of tariff uncertainty and would help restore confidence among global buyers.
“The trade agreement between India and the US is a positive and welcome move, particularly in the wake of a prolonged period of tariff uncertainty,” Shah said. “For India’s consumption-driven export sectors, this trade agreement enhances confidence, competitiveness in a major global market, and India’s position as a reliable manufacturing and sourcing destination.”
Shah said sectors closely tied to US consumption demand, including gems and jewellery, textiles and clothing, and marine exports such as shrimps, were likely to benefit the most, as improved market access and reduced tariffs could enhance price competitiveness and demand visibility. However, he added that sectors with high compliance costs, stringent quality standards or intense competition from other low-cost exporters could remain under pressure in the short term.
From an industry standpoint, geopolitical uncertainty is expected to persist. “Geopolitical dynamics will keep changing,” Shah said. “But it is important to understand that the trade agreement has to be considered in the context of strategy. The export sector itself is a very diverse sector, and it is likely to have a relative advantage because of demand and supply chain integration.”
Tariff Relief Brings Gains, Strategic Trade Risks
Economists say the agreement represents a significant recalibration of bilateral economic ties, but also involves strategic trade-offs. Manoranjan Sharma, chief economist at Infomerics Ratings, said India had committed to lowering average tariffs on US goods from roughly 25 per cent to about 18 per cent and easing several non-tariff barriers.
In return, India has committed to sharply expanding imports from the United States—reportedly up to USD 500 billion—spanning energy, defence, aircraft, technology, and agriculture. The agreement also signals a gradual reduction in India’s reliance on Russian oil, although the timeline and contractual specifics remain uncertain,” said Sharma.
Sharma said reduced tariffs would enhance the competitiveness of Indian exports in the US, particularly in textiles, gems and jewellery, engineering goods, pharmaceuticals and other labour-intensive manufactures. With an effective tariff rate near 18 per cent, Indian exporters would gain a relative edge over competitors such as Vietnam and Bangladesh, where tariffs are around 20 per cent, and a substantial advantage over China, where tariffs exceed 30 per cent.
Financial markets reacted positively to the announcement, with the rupee appreciating, equity markets advancing and bond yields softening, reflecting lower trade uncertainty and improved earnings visibility, Sharma said. The agreement is also expected to revive foreign portfolio inflows, supporting equity valuations and capital formation.
Strategically, the deal reinforces India’s appeal as a “China-plus-one” alternative and aligns with multinational efforts to diversify sourcing and manufacturing. However, Sharma warned of vulnerabilities, including increased concentration risk and reduced policy flexibility.
“Shifting away from Russian oil toward US LNG and coal tightens alignment with US geopolitical priorities but narrows energy diversification, potentially increasing cost volatility and long-term dollar outflows,” he said. “Additionally, near-zero tariffs on select US products could pressure Indian manufacturers and farmers unless domestic reforms and adjustment mechanisms are carefully managed.”
Vikram Chhabra, senior economist at 360 ONE Asset, said the agreement removed a lingering overhang on trade and sentiment, even though finer details were still awaited. Chhabra said the most significant implications were for labour-intensive sectors such as textiles and leather, gems and jewellery, and agricultural products, which had been hardest hit by higher tariffs earlier. These sectors were also expected to see gains in exports and employment, building on benefits from other trade arrangements.
While the finer details of the agreement are awaited, the deal signals deeper trade alignment between India and the US. Given that the US is India’s largest trading partner, the agreement removes a lingering overhang and is supportive of India’s trade, currency sentiment and medium-term growth prospects,” Chhabra said.
Industry bodies have broadly welcomed the tariff reductions while emphasising the need for execution and coordination. Rajeev Juneja, president of PHDCCI, said lower tariffs signalled a renewed commitment to trade openness and economic efficiency.
Reduced tariffs cut input costs for domestic industries, strengthen supply chains, and ease inflation by lowering prices for businesses and consumers. They benefit key sectors, including manufacturing, technology, healthcare, and renewable energy—by improving access to intermediate goods, capital equipment, and critical components,” Juneja said.
MSMEs See Opportunity, But Execution Unclear
For MSMEs, the agreement offers both opportunity and challenge. Verma said real outcomes would depend on how effectively exporters could execute on the ground. “Beyond tariff reductions, exporters will require timely access to working capital, efficient receivables financing, predictable logistics, and robust trade infrastructure to manage higher order volumes and longer supply chains,” he said.
As trade flows increase, digital trade finance and credit enablement platforms are expected to play a larger role in improving liquidity and managing risk. Verma said greater coordination between policy, financial institutions and technology providers would be critical to ensure smaller exporters could participate fully in the expansion.
However, exporters say that without a published agreement and legal clarity, many MSMEs will remain in a wait-and-watch mode. While near-term sentiment has improved and commercial conversations have restarted, India Inc remains cautious about committing capital until it sees the fine print.
For now, the India-US trade agreement is being viewed as a step in the right direction rather than a finished product, with businesses welcoming lower tariffs but seeking certainty that the rules of engagement will not change midway.
Source: Business World