Subscribe
The US has agreed to cut tariffs on Indian goods to 18 per cent, down from as high as 50 per cent.
The new trade deal could see India purchasing up to $500 billion in American goods.
This move is expected to boost Indian exports, particularly in the solar sector.
Questions remain about the specifics of the agreement.
The United States (US) on February 3, 2026 agreed to cut tariffs on Indian goods to 18 per cent, down from the high of 50 per cent. US President Donald Trump said that India could buy up to $500 billion worth of American goods, including energy and technology, under a framework trade agreement announced after a call with Prime Minister Narendra Modi.
This came on the heels of India's free trade agreement with the European Union, signed after two decades of negotiations amid geopolitical tensions and trade instability.
The announcement marked a major reset in the India-US trade ties after months of tariff escalation and diplomatic friction, particularly over India’s energy sourcing. However, the absence of a published agreement text has triggered questions over timelines, sectoral coverage and the binding nature of commitments claimed by Washington.
According to US statements, the deal lowers US tariffs on Indian exports to 18 per cent, giving India a competitive edge over regional peers such as Indonesia, Bangladesh and Vietnam, which face tariffs in the 19-20 per cent range.
Trump described the agreement as a “breakthrough” and said Washington would also withdraw an additional 25 per cent penalty tariff imposed over India’s purchases of Russian oil, contingent on New Delhi significantly reducing or ending such imports.
The US President further claimed that India would sharply expand purchases of American goods — potentially up to $500 billion across energy, agriculture, technology and defence, and could move towards zero tariffs on US imports, though Indian officials have not publicly confirmed these figures.
India exported around $85.5 billion worth of goods to the US between January and November 2025, within a broader $212 billion two-way trade relationship. The tariff reduction is expected to improve the competitiveness of Indian exports, particularly in manufacturing and clean-energy equipment.
Financial markets responded positively, with the Nifty 50 and the rupee gaining on expectations of improved market access and lower trade uncertainty.
Industry leaders said the tariff reset could be especially significant for India’s fast-growing solar manufacturing sector.
Prashant Mathur, chief executive of Saatvik Green Energy, said the US move was “a strategic turning point for the solar sector, rather than just a routine policy change”.
“The US decision to reduce tariffs on Indian goods from 25 per cent to 18 per cent, along with the elimination of the additional punitive levy, significantly enhances the cost-competitiveness of Indian-made solar cells and modules,” Mathur said. He noted that India’s solar exports, including cells and modules, already run into billions of dollars, with the US emerging as the country’s most important overseas market.
The seven-percentage-point tariff cut, he said, would improve project economics for US developers and generate fresh demand for high-efficiency, Made-in-India solar products over the coming years.
Mathur added that the move strengthens the case for open and reliable supply chains, easing concerns around Chinese manufacturers circumventing tariffs and positioning India as a credible alternative aligned with US trade and industrial objectives. “For companies like Saatvik, this transforms the US market from being high-risk to one full of opportunity,” he said, pointing to the need for faster investments, technology upgrades and long-term partnerships with US utilities and developers.
Energy remains the most sensitive pillar of the trade reset. US officials have said India agreed to phase out or significantly reduce Russian oil purchases, a key condition for rolling back penalty tariffs.
Trump has said India would diversify supplies by increasing imports of US crude oil and LNG, though industry sources caution that a sudden halt to Russian oil is unlikely due to existing contracts and logistical constraints. Any shift would require a gradual wind-down.
India, one of the world’s largest energy importers, has repeatedly stressed that procurement decisions will prioritise national interest and price competitiveness, even as it diversifies sources.
Despite the headline numbers, lawmakers and trade experts have flagged the lack of an official document spelling out commitments. It remains unclear which US goods will gain improved access to India’s market and whether any zero-tariff promise would be legally binding or immediate. US Section 232 tariffs on steel, aluminium and autos are also expected to remain.
The agreement is being positioned as an interim or first-phase deal, with a longer-term ambition to expand bilateral trade to around $500 billion by 2030. Whether that target is reached will depend on how quickly unresolved issues, from energy sourcing to market access, are clarified.
In a nutshell, the India-US trade deal delivers an immediate tariff reset and a boost to export-oriented sectors such as solar manufacturing, but its full economic impact will hinge on the fine print that is yet to be made public.
“While the reciprocal tariff rate has been proposed to be lowered under this framework, certain US tariffs particularly those imposed under Section 232 (national security) on products such as steel, aluminium, copper, automobiles and auto components and other goods are expected to remain in effect. As a result, an estimated portion of India’s exports to the US will continue to face higher tariffs despite the trade deal,” said Gulzar Didwania, partner, Deloitte India.
Duties levied under Section 232 apply universally on all the covered products imported in US and not specific to any country. “Accordingly, that is not likely to reduce to 18 per cent. Specified auto and auto components which are subject to section 232 duties, will continue to be subject to 25% duties and derivatives of steel, copper and aluminium will be subject to 50% section 232 duties on the content of steel, copper and aluminium,” he added.