Following nine months of talks, India has secured a breakthrough trade agreement with Washington DC, slashing punitive tariffs to 18% from 50% in exchange for a total halt of Russian oil purchases and ramping up imports from the US, President Trump said on Truth Social. India is expected to “move forward to reduce their tariffs and non tariff barriers against the United States, to ZERO,” Trump said.

The announcement, widely welcomed by businesses, brought a cheer to the Indian markets with benchmark indices rising up to 2.5% yesterday. The INR gained 1.2%, rising to 90.27 to the USD from the record low of 92. “This move effectively erases the ‘underwhelming’ budget sentiment and targets a swift recovery toward psychological resistance levels,” Swiss wealth management firm Julius Baer said in a note.

Russia oil halt: India has committed to ending purchases of Russian crude and will instead expand oil and energy imports from the US, with Venezuela also being considered as an additional supply source, White House press secretary Karoline Leavitt told Fox News.

Why it matters: The cutback in Russian crude purchases is likely to expand India’s purchases from MENA. “For the Indian refining sector, there are ample avenues, including the US, to source crude, as Russian oil accounted for less than 2% of India’s crude imports prior to 2023,” Prashant Vashisht, vice president at rating agency ICRA, told EnterpriseAM.

Lukoil and Rosneft, which together accounted for around 60% of India’s Russian crude imports, are currently under US sanctions. “Given that such a large share of supply has effectively been removed for Indian refiners because of sanctions, this shift away from Russian crude is likely to continue. In that sense, the current change is structural,” Vashisht said.

Other terms: US officials said that India will step up purchases of American goods, including petroleum, defence equipment, and aircraft, while offering limited access to its highly protected agriculture sector, Reuters reports. While Trump claims Indian imports from the US will rise to USD 500 bn, Indian officials have maintained silence on the exact number.

Under the potential US-India trade agreement, India would eliminate duties on US agriculture while decreasing tariffs on manufactured items like chemicals and medical equipment, while maintaining protections for sensitive agricultural products like dairy, rice, beef, and sugar, US trade representative Jamieson Greer told CNBC.

Missing details: However, key operational details — including when the new tariff rate will take effect and the deadline for India to halt Russian oil purchases — have not yet been announced by the US administration or the Indian government.

Our take

Signals from the White House suggest that reductions in Russian oil purchases remain a persistent condition for tariff reductions. This position will make New Delhi’s balancing act between Moscow and Washington DC more precarious. More broadly, Donald Trump’s tariffs dealt a blow to India-US relations, which were otherwise immune to political changes in DC. The bottom line is that India is no longer immune from US pressure, sanctions, and arm-twisting — a significant departure from earlier US policy under both Republican and Democrat administrations.

Tags: