Strategies for India and US to Grow Trade Closer in 2025
Introduction
India and the United States, as two of the world’s largest democracies and significant economies, share a robust trade relationship with substantial potential for growth. In 2025, with the US as India’s top trading partner and bilateral trade dynamics evolving, both nations are actively working to deepen their economic ties. This report outlines key strategies to grow trade closer in 2025, focusing on ongoing negotiations, sectoral cooperation, and long-term goals, while addressing challenges and leveraging opportunities.
Finalizing the Bilateral Trade Agreement (BTA)
The cornerstone of enhancing India-US trade in 2025 is the finalization of a bilateral trade agreement (BTA). As of July 2025, negotiations are in the "endgame" phase, with an interim deal expected before July 9, 2025, to avoid a 26% US tariff on Indian goods (in addition to the existing 10% baseline tariff). A comprehensive, long-lasting agreement is anticipated by September-October 2025.
Key Features of the BTA
Tariff Reductions: The US seeks concessions on industrial goods, automobiles (especially electric vehicles), wines, petrochemical products, dairy, and agricultural products like apples, tree nuts, and genetically modified crops. India is pushing for lower tariffs on textiles, gems and jewelry, leather goods, garments, plastics, chemicals, shrimp, oil seeds, grapes, and bananas.
Market Access: The US is particularly focused on accessing India’s agricultural market, though India remains cautious due to domestic concerns. Enhanced market access for both sides is a priority.
Non-Tariff Barriers: The agreement aims to address issues like data localization and regulatory hurdles to facilitate smoother trade flows.
Negotiation Progress: Indian negotiators, led by Rajesh Agrawal, extended their stay in the US from June 26-27 to July 1, 2025, to finalize the interim deal. US President Donald Trump has hinted at a "very big" trade agreement, stating, "We are having some great deals. We have one coming up, maybe with India, a very big one, where we’re going to open up India" (New Indian Express).
Strategic Importance
The BTA is critical in the context of global protectionism and a weakening World Trade Organization (WTO). By securing this agreement, both countries can mitigate the impact of US reciprocal tariffs effective since April 2, 2025, and strengthen bilateral ties as a pragmatic alternative to multilateral frameworks (Vivekananda International Foundation).
Addressing Tariff Issues
Tariff adjustments are a key component of growing trade closer. India has made significant concessions, such as scrapping its 6% digital service tax and offering to cut tariffs on US agricultural products, to secure exceptions from US tariffs (Reuters). The US imposed a 26% tariff on Indian imports, but India has not retaliated, focusing instead on negotiations to resolve these disputes (India Briefing).
Tariff Negotiation Details
Country | Sectors Sought for Tariff Concessions | Current Tariff Status |
|---|---|---|
US | Industrial goods, automobiles (especially EVs), wines, petrochemicals, dairy, agricultural products (apples, tree nuts, GM crops) | 26% tariff on Indian imports since April 2, 2025 |
India | Textiles, gems and jewelry, leather goods, garments, plastics, chemicals, shrimp, oil seeds, grapes, bananas | 10% baseline tariff, potential increase to 36% if no deal by July 9, 2025 |
These negotiations aim to balance economic interests while addressing the US’s $45.7 billion trade deficit with India.
Sector-Specific Cooperation
Focusing on specific sectors can significantly enhance trade. Both countries have identified key industries where mutual benefits can be realized.
Agriculture and Dairy
US Perspective: The US is pushing for greater access to India’s agricultural market, which India has kept closed due to domestic concerns (Economic Times).
India’s Stance: Protecting its politically influential agricultural sector, including wheat and dairy, is a priority. The interim deal is expected to spare these markets from US tariffs (X Post by @TheNavroopSingh, July 3, 2025).
Potential Compromise: India has agreed to import more natural gas from the US to balance trade concessions.
Defense Trade
The US is advocating for increased sales of military hardware, including potential sales of F-35 fighter jets, which could bolster bilateral ties (Business Standard).
Defense trade aligns with broader geopolitical interests, including the Quadrilateral Security Dialogue (Quad).
Technology and Digital Trade
Both nations are exploring opportunities in digital trade, with India’s scrapping of the digital service tax signaling openness to cooperation (Reuters).
Indian firms are leveraging technology to address supply chain challenges, with 47% using digital tools for inventory management, significantly higher than the global average (The Economist).
Clean Energy and Climate Action
Collaboration on clean energy aligns with both countries’ decarbonization goals. The US and India can transform climate action into economic opportunities, building resilient supply chains and supporting domestic clean energy industries (Center for American Progress).
This sector offers significant potential for trade growth, given the large size and emissions profiles of both economies.
Long-Term Trade Goals
In a joint statement on February 13, 2025, Presidents Trump and Modi committed to enhancing bilateral trade to $500 billion by 2030 (Ministry of External Affairs). This ambitious target reflects the strategic importance of the trade relationship.
Economic Context
India’s Growth: The IMF projects India’s GDP growth at 6.2% for 2025, down from 6.5% due to trade tensions and global uncertainty (EveryCRSReport). India’s economy, the fifth-largest globally, is driven by demographic dividends and middle-class consumption (Deloitte).
US Trade Dynamics: The US remains India’s top trading partner, with Indian exports to the US growing by 11.6% in FY25 to $86.51 billion (Business Standard).
Unrealized Potential: The International Trade Centre estimates a $30 billion unrealized export potential from the US to India and $55 billion from India to the US in sectors like jewelry, motor vehicles, machinery, pharmaceuticals, and chemicals (HSBC).
Broader Economic and Geopolitical Alignment
Trade is a critical component of the broader India-US strategic partnership. Both countries are aligning their trade policies to build resilient supply chains, hedge against economic coercion, and generate export opportunities. India’s recent trade agreements with the UAE, Australia, and Scandinavian countries reflect its strategy to diversify trade and attract investment, indirectly supporting its US partnership (The Economist).
Geopolitical Context
The deepening of US-India ties through mechanisms like the Quad enhances the geopolitical logic of trade collaboration.
Amid global protectionism, bilateral agreements like the BTA are increasingly vital for economic stability.
Challenges and Considerations
Several challenges must be addressed to ensure successful trade growth:
Agriculture and Dairy: These sectors remain contentious, with India prioritizing domestic protection and the US seeking greater access.
Trade Deficit: The US aims to reduce its $45.7 billion trade deficit with India, which may influence negotiation terms.
Domestic Regulations: India’s complex business environment, including regulations requiring government approval for layoffs, deters investment and hinders growth in sectors like textiles (The Economist).
Global Uncertainty: Trade tensions and a weakening WTO create a challenging backdrop for negotiations.
Potential Impact
A successful BTA could significantly boost bilateral trade, enhance supply chain cooperation, and create new opportunities for investment. It could also serve as a model for future trade agreements, given the strategic importance of both economies. The deal’s success will depend on balancing economic interests and addressing domestic concerns in both countries.
Conclusion
India and the US can grow their trade closer in 2025 by finalizing their bilateral trade agreement, focusing on tariff reductions, market access, and sectoral cooperation in agriculture, defense, technology, and clean energy. The interim deal expected before July 9, 2025, and a comprehensive agreement later in the year will be pivotal. With a long-term goal of reaching $500 billion in bilateral trade by 2030, both nations are poised to strengthen their economic and geopolitical partnership, provided they navigate challenges like agricultural sensitivities and trade deficits effectively.
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