India to rely on brokering quick FTAs to limit Trump tariff fallout

US President Donald Trump with Indian Prime Minister Narendra Modi

India may bank on quick free trade agreements (FTAs), which provides lower duties between partner countries, to limit the fallout of US President Donald Trump’s aggressive tariff policies, a senior government official said.

“We hope customs duties will come down further going ahead due to FTAs,” the official told Moneycontrol, as Trump’s tariff escalation continues to roil markets and raises concerns about global trade.

In his latest salvo, Trump slapped a 25 percent tariff on all steel and aluminium imports, causing potential economic disruptions.

India, the eighth largest exporter of steel and aluminium to the US, is expected to take a hit too.

Trump, who has often called India a “tariff abuser”, plans to come out with a list of reciprocal levies on nations that impose higher duties on American goods. These tariffs, expected to be announced in a day or two, are likely to include India.

FTAs, therefore, are a key tool to counter such a scenario. These agreements helps lower trade restrictions between the signatory countries, offering greater market access through removal or reduction of import taxes or duties.

Trade winds

India is negotiating a slew of trade deals with countries and blocs, including the United Kingdom, Oman and the European Union.

India’s trade and investment pact with the European Free Trade Association (EFTA), which includes Iceland, Liechtenstein, Norway and Switzerland, is also expected to be ratified by the end of the current calendar year.

A second government official said India could suggest talks for a mini-trade deal with the US, a proposal that did not make much headway during Trump’s first term as the American president.

Trade and tariffs are likely to hold centre stage when Prime Minister Narendra Modi meets Trump during his visit to the United States on February 12-13.

Though India is relying on trade agreement to navigate growing protectionism, authorities are of the view that the Budget 2025 addresses a lot of these concerns with targeted changes to import duties.

In the Budget, the finance ministry has already taken steps to rationalise customs duties and may not rush to tinker with rates further.

“We have factored in Rs 2,600 crore in revenue loss due to tariff rationalisation. We have already reduced customs duties. Normally, what is announced in the Budget is announced, we are unlikely to reduce customs duties whenever we feel like. We have already reduced customs duties a lot currently,” the first official said.

Central Board of Indirect Taxes & Customs chairman Sanjay Kumar Agarwal earlier told Moneycontrol that the Budget had taken steps to correct the “bad optics of high tariffs” by reducing the average customs duty rate from 11.65 percent to 10.66 percent for improved trade perception and competitiveness.

Think-tank Global Trade Research Initiative (GTRI), too, points out that the Budget introduced significant tariff reductions on multiple products, many of which will benefit American exports.

Among the notable reductions that directly benefit American exports are lowering duty on fish hydrolysate, synthetic flavouring essences, ground installation for satellites, including spares and consumables and on motorcycles based on engine capacity, GTRI said.

“While Trump has long criticised India's tariff structure, these latest reductions indicate a shift in policy that could boost US exports across multiple sectors. India appears to be taking steps toward facilitating trade even as the global trade environment remains tense. Whether these reductions will alter Washington’s view of India’s trade practices or become a point of contention in the US election cycle remains to be seen,” GTRI’s founder Ajay Srivastava said.