The bulletins by each U.S. President Donald Trump and Prime Minister Narendra Modi that the U.S. will cut back “reciprocal” tariffs on India from 25% to 18% are a significant reduction to Indian exporters, and point out relations between the 2 international locations are on the mend, after a 12 months of extreme tensions.
A U.S. Embassy spokesperson additionally confirmed {that a} 25% penalty tariff imposed on India final August, which had pushed whole tariffs to 50%, the best on any nation on the earth together with Brazil, has now been dropped.
“Out of friendship and respect for Prime Minister Modi and, as per his request, efficient instantly, we agreed to a Commerce Deal between america and India, whereby america will cost a decreased Reciprocal Tariff, reducing it from 25% to 18%,” Mr. Trump introduced first, including in a prolonged social media submit, that India had agreed to a number of measures, together with stopping Russian oil imports, cut back tariffs and non-tariff limitations “to Zero”, and shopping for U.S. items together with power of greater than $500 billion.
In his response, Mr. Modi didn’t consult with any of the situations talked about by Mr. Trump, nor did he give particulars of the commerce deal.
“Delighted that Made in India merchandise will now have a decreased tariff of 18%. Huge because of President Trump on behalf of the 1.4 billion individuals of India for this glorious announcement,” Mr. Modi mentioned in a submit. “When two giant economies and the world’s largest democracies work collectively, it advantages our individuals and unlocks immense alternatives for mutually helpful cooperation,” he added.
The transfer on slashing U.S. tariffs, which was made throughout Exterior Affairs Minister S. Jaishankar’s go to to Washington to attend a Important Minerals Ministerial assembly, and some weeks after U.S. Ambassador Sergio Gor arrived in Delhi, got here after a phone name between the 2 leaders, and has been welcomed by each governments and enterprise chambers in each international locations.
“Our wonderful relationship with India might be even stronger going ahead. Prime Minister Modi and I are two those who GET THINGS DONE, one thing that can not be mentioned for many…” Mr. Trump continued.
Nevertheless, a number of variations stay between Mr. Trump’s model of the settlement and Mr. Modi’s model, which can should be reconciled.
1. The place is the U.S.-India commerce deal?
Mr. Trump’s reference to a commerce deal leaves it unclear whether or not he’s referring to a deal over chopping reciprocal tariffs or to the bigger “first tranche” of the India-U.S. Free Commerce Settlement (FTA) that has been negotiated between commerce groups after PM Modi’s go to to Washington in February 2025. On account of the FTA, either side had been anticipated to drop tariffs, however no particulars of the FTA, which incorporates tariffs and non-tariff limitations, market entry and investments, have up to now been launched by both authorities. In contrast to the EU-India FTA concluded final week, the contours of the ultimate India-U.S. settlement, the negotiated textual content, haven’t been disclosed.
Additional, Mr. Trump’s declare that India would “cut back Tariffs and Non-Tariff Obstacles in opposition to america, to ZERO”, has not been confirmed by New Delhi, nor has there been a proof on which traces would cut back to zero. As well as, the query over market entry particularly in agricultural sectors like soyabean and dairy, which India has been reluctant to open, stays unanswered. In January, U.S. Commerce Secretary Howard Lutnick had mentioned {that a} deal had been ready months in the past, however couldn’t be carried out as he claimed PM Modi didn’t make a phone name to Mr. Trump to clinch it. The MEA had denied the declare.
2. Will 18% resolve India’s drawback within the area?
The reciprocal tariff price imposed by the U.S. in April 2025 of 25% had been a double blow for Indian exporters as a result of it was greater than its regional rivals, Bangladesh and Vietnam (20%), Pakistan (19%) and China (34%, however a lot of it was delayed till November 2026). The brand new reciprocal tariff price of 18% is thus a welcome step, particularly for attire producers, and gems and jewelry exporters who had been the worst hit by the tariffs. Nevertheless, it should be remembered that every one of India’s neighbours and a few of its Asian rivals additionally obtain a particular GSP (Generalised System of Preferences) concession of about 5%, which the U.S. withdrew from India in June 2019, throughout Mr. Trump’s first tenure, and therefore Indian exporters had hoped for a reciprocal tariff price of about 15%.
3. What occurs to India’s imports of Russian Oil?
In his submit on Monday (February 2, 2026), Mr. Trump mentioned that PM Modi had “agreed to cease shopping for Russian Oil, and to purchase far more from america and, probably, Venezuela”, including that this is able to assist finish the warfare in Ukraine. The MEA has not responded to requests for touch upon this situation. Whereas the federal government insists that it has no half to play in these industrial choices, Mr. Trump’s assertion that PM Modi had agreed to chopping Russian oil contradicts it.
In an announcement on August 6, 2026, the MEA spokesperson had issued an announcement slamming U.S. penalty tariffs of 25% for India’s buy of Russian oil, calling them “unfair, unjustified and unreasonable”, and asserting that oil imports are based mostly on “market components” with the target of guaranteeing power safety for Indians. India’s buy of Russian oil, that reached a peak in 2024, continued unabated for the following few months. Nevertheless, in October, Indian refiners started to chop Russian Ural oil orders, about 38% from the earlier 12 months in October, after which in December.
“India’s Russian crude imports recorded a pointy 29% month-on-month discount to the bottom volumes for the reason that implementation of the value cap coverage,” European Centre for Analysis on Vitality and Clear Air (CREA) mentioned. On January 6, 2026, Reliance Industries, one in all India’s greatest refiners, mentioned in an announcement that it will not obtain any oil from Russia in January 2026, and had not obtained any Russian oil within the final three weeks.
4. Is India bowing to U.S. sanctions?
In 2019, India had equally “zeroed out” its imports of Iranian and Venezuelan oil, after Mr. Trump had threatened sanctions, and despatched U.S. Ambassador to the UN Nikki Haley to Delhi to publicly press the purpose. After the kidnapping of Venezuelan President Maduro by U.S. forces in January this 12 months, Mr. Trump has indicated the U.S. would “enable” international locations to import Venezuelan oil. This can be a reduction for India, however raises questions over its autonomy on essential strategic choices like power procurement.
The U.S. has additionally threatened to impose 25% tariffs on international locations “doing enterprise” with Iran, which incorporates India, and has determined to withdraw its sanctions waiver on Indian funding in Iran’s Chabahar port. Authorities sources indicated India is ready to surrender its “minimal ranges” of commerce with Iran somewhat than face extra tariffs. The Union price range offered on February 1 additionally reveals no allocation for Chabahar within the upcoming 12 months, indicating the Modi authorities is making ready to again away from the 23-year undertaking, a minimum of till the threats of U.S. sanctions ease.
5. How a lot has India dedicated to investing within the U.S.?
In his submit, Mr. Trump mentioned that Mr. Modi additionally “dedicated to “BUY AMERICAN,” at a a lot greater degree, along with over $500 BILLION DOLLARS of U.S. Vitality, Know-how, Agricultural, Coal, and lots of different merchandise”. Mr. Trump had equally claimed that the European Union, Japan and several other others had dedicated to investments of over $500 billion as properly, after saying commerce offers with them. The MEA declined to touch upon whether or not such a dedication has been given, however the measurement of the determine signifies that is meant to be carried out over a number of years, and with a number of sectors concerned. Keep in mind, India-U.S. bilateral commerce in items stands at about U.S. $131 billion, and India’s funding within the U.S. has hovered round U.S. $40 billion.
