From Financialexpress · Ajay Joseph · · 2m
India-US trade deal stuck in final stretch
Tariffs, Russia and FEMA rules delay India-US trade deal.
In brief
Tariffs, Russia and FEMA rules delay India-US trade deal. India and the US remain in final trade negotiations but face unresolved tariff issues, Russia-related tariffs, and FEMA rules that complicate a bilateral trade agreement. Originally reported by Financialexpress.
Trade negotiations in final phase
The United States Trade Representative Jamieson Greer stated India and the US are in the final phase of trade negotiations but the signing is not imminent.
February framework agreement
India and the US agreed on a framework for a bilateral trade agreement in February, with India committing to purchase $500 billion worth of US products over five years.
Tariff concerns for India
New Delhi seeks better tariff treatment than ASEAN economies and China while facing US tariff threats related to Russian energy purchases.
Russia-related tariff threat
The US signed the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026, imposing up to 100% tariffs on imports from key buyers of Russian energy, including India.
Section 301 investigation
The US is investigating whether India has excess industrial capacity, potentially imposing additional tariffs that could complicate trade negotiations.
India rejects excess capacity claim
India argues its manufacturing capacity serves both domestic and international markets and addresses trade-distorting practices through WTO rules.
US demands economic security alignment
The US seeks stronger economic-security cooperation, including supply-chain resilience and investment reviews, raising concerns about India's policy autonomy.
FEMA investment rules under scrutiny
The US State Department flagged restrictions under India's Foreign Exchange Management Act that affect foreign investment and taxation of foreign banks.
Foreign banks face higher tax rates
Foreign banks in India face an effective tax rate of 38.22%, 4.63 percentage points higher than domestic banks.
India's trade balance concerns
India's $500 billion purchase commitment lacks a comparable US commitment to purchase Indian products, raising concerns about an uneven trade balance.
US seeks policy alignment
The US may require India to align economic and foreign-policy decisions with Washington, potentially constraining India's policy autonomy.
India's strategic balancing act
India must balance protecting exporters from US tariffs, securing market access, and retaining policy flexibility amid Russia-related tensions.
The one thing
India and the US remain in final trade negotiations but face unresolved tariff issues, Russia-related tariffs, and FEMA rules that complicate a bilateral trade agreement.
