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Below the Comment on India–US Trade Deal from Namrata Mittal, CFA, Chief Economist, SBI Mutual Fund 

US President Donald Trump and Indian Prime Minister Narendra Modi announced on social media a tariff arrangement under which US tariffs on India would be reduced from 50% to 18%. There are two parts to this. First, reciprocal tariff by the US on India is expected to decline from 25% to 18%. In addition, the 25% penalty imposed on India for purchases of Russian oil appears to have been withdrawn, following India’s reported agreement to stop importing Russian crude.

As part of the understanding, India has reportedly agreed to reduce tariffs and non-tariff barriers on select US imports to zero. It is also being claimed that India has committed to purchase up to US$ 500 billion of American goods across energy, technology, and agriculture. This figure appears a bit challenging, given that India’s imports from the US in 2025 were approximately USD 45 billion.

While the revised tariffs are said to be effective immediately, we await formal clarification on product-wise tariff rates and the precise scope of coverage. Even in the recent India–EU FTA, agricultural and dairy products were excluded from tariff reductions. It will therefore be important to assess India’s stance on these sensitive categories in the US tariff arrangement as well. Since this is a deal and not an agreement, we think that it might not require parliamentary approval.

Overall, this development is a strong macro positive. Despite robust fundamentals—fiscal prudence, a contained current account deficit, low external debt, growth outperformance versus the rest of the world, and muted inflation—India saw weak net FII flows across both debt and equities in 2025, while the rupee emerged as the amongst the worst-performing currency that year. Beyond elevated equity market valuations (which have corrected meaningfully now), the absence of a trade deal had been a key overhang contributing to these outcomes.

Several macro frictions such as currency weakness, subdued FII flows, balance of payment deficits, tight banking system liquidity, and upward pressure on yields could somewhat mitigate with the deal announcement, which in turn could provide a positive boost to equities as well.

Although exports to the US held up after the tariff announcement, exporters were absorbing tariff pressures, which weighed on margins. The market had been expecting the trade deal to materialise, and in that context, losing export market share would have been more costly. A reduction in tariff rates should help ease margin pressure and could revive expansion plans in the affected sectors—making this a clear growth positive.

The deal may also reinforce the government’s strategic initiatives outlined in the budget to catalyse foreign investment in data centres, telecom equipment, semiconductors, nuclear, and GCCs. More broadly, it restores some confidence in the trajectory of India–US relations.

India has finally secured a trade deal or an agreement with three key bloc- US, EU and UK- accounting for nearly half of global GDP. This is an important development from manufacturing industry and exporters point of view. With a conducive business, regulatory and infrastructure backdrop, it should help aid India’s manufacturing and export sector.

However, a word of caution. These deals are not an agreement. The threat of tariff imposition on European nation to coerce them to comply on the Greenland issue and then on Korea for a speedy implementation of trade deal is a reminder that exporters and policy makers would always be at their toes when dealing with the US. We think that the risks on other related issues like immigration or service exports is down but not out. India had warmed up to China in recent months. Those developments could continue separately irrespective of the deal.

The absence of a trade deal had also helped accelerate the government’s reform agenda. While this agreement may provide some near-term policy breathing space and allow benefits to accrue from measures already taken, it is important that policymakers remain focused on the longer-term objective of strategic indispensability.

Both Indian equity and fixed income markets significantly underperformed emerging market peers in 2025. The trade deal could offer a meaningful sentiment boost to equities; however, a sustainable, broad based market recovery will also require earnings rebound. While Indian rupee could pare back some of its recent weakness and could also support fixed income by partly offsetting the budget-related G-sec supply shock, beyond the near term, rate dynamics will continue to be shaped by demand–supply conditions, commodity moves, and their impact on inflation. Improved liquidity conditions could also reduce the need for OMOs.

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