India-US trade tariff stalemate ends, what does this mean for New Delhi and its economy

India and US finally broke the trade deal stalemate as Donald Trump on Monday (Feb 2) announced a new deal with India featuring lower reciprocal tariffs. This slashes the tariffs from 50% to 18% for India. Under this agreement New Delhi would need to halt purchases of Russian oil and sharply increase imports of American goods.

Trump had imposed a 25% tariff on Indian exports late last year as his deadline to sign a deal with countries had lapsed. Trump later doubled the tariffs on India to 50% as he accused Delhi of continuing to buy oil from Russia and thereby supporting Moscow in its war against Ukraine.

The tariff reduction by the US was confirmed by Prime Minister Narendra Modi, who took to X to say, “Wonderful to speak with my dear friend President Trump today. Delighted that Made in India products will now have a reduced tariff of 18%. Big thanks to President Trump on behalf of the 1.4 billion people of India for this wonderful announcement."

What does the slash in US tariff mean for India?

This lowering of tariffs from 50% to 18% gives India an advantageous position in comparison to competing economies like Indonesia that faces tariff of 19%, Vietnam 20%, Bangladesh 20%, China 34% and Pakistan 19%.

The new trade deal is effective immediately.

While India as claimed by Trump will cut tariffs and non-tariff barriers on US goods to zero. It will also buy over $500 billion in US goods and energy, including coal, along with technology, agricultural and other products.

But what is to be noted is that the duties levied by the US on trade with India are still higher when compared to European partners like Japan and South Korea.

The new trade deal, according to External Affairs Minister will boost boost job creation, spur economic growth, promote innovation and give a fillip to the 'Make in India' initiative.

Welcoming to move Jaishankar took to X to write, "This will create more jobs, spur growth and promote innovation in both economies. It will strengthen 'Make in India' endeavours and encourage trusted technology ties."