Sensitive sectors, stronger stance: India may stick to red lines in high-stakes US trade talks

Prime Minister Narendra Modi and US President Donald Trump

As the first round of in-person sectoral talks starts from May 17, a lot has changed between India and the United States, potentially influencing the negotiations for the proposed trade deal.

Sources say that India’s interest will be prioritised and talks will be measured as the country seeks to protect sensitive items in agriculture as well as sectors like dairy, despite President Donald Trump’s claim that New Delhi has offered to drop tariffs on all US goods.

India has so far offered zero-to-zero tariffs for industrial goods, while the rates on other items are still being negotiated, especially given the sensitivity of the farm and dairy sectors, one of the sources said.

“Whenever there is a trade deal, you want to protect your sensitive sectors, even if the other side would want to protect some sectors, so it is going to be a bargain. So, we will have to reach a balance, but we will protect our sensitive sectors,” a senior government official added.

Trump on May 15 said the Indian government has “offered us a deal where basically they are willing to literally charge us no tariff.”

His comments come at a time when there is a growing frustration in India over the US President’s announcement of a ceasefire between India and Pakistan on May 10, following an escalation of hostilities.

The US President claimed that he used trade as a lever to secure a truce, a development denied by Indian officials.

Only a few days later, India, on May 13, made a move to take the US to the WTO public, proposing to impose retaliatory duties in response to American tariffs on steel and aluminium.

This is different from India’s earlier stance of securing exemptions through the trade deal rather than proposing retaliatory tariffs, even as the US levied a 25 percent sectoral duty on steel and aluminium.

“One month ago, stakeholders had offered the government the option to take the WTO route, suggesting that it is time we retaliate, then the government wasn’t forthcoming, so we pulled it back. But now it has been proposed to be levied,” the first source cited above said.

India will discuss its proposal to impose retaliatory tariffs during in-person talks with the US, the official said, adding that the decision to go to the WTO on this issue was a “pragmatic one”.

The BTA timeline?

India’s stance is clearly more cautious, even as Trump’s statements indicate the Bilateral Trade Agreement (BTA) between India and the US is almost a done deal.

“I don’t think you can suddenly finalise a deal. The rounds will lead to a result,t and then we will take a call,” the official cited above said.

To be sure, the official said, both sides are still looking to agree on a deal before the reciprocal window ends in early July, even if it is a scaled-down version.

“A lot of things are discussed and are on the table, the framework of the deal (whether it is a full-fledged tranche of a BTA or a scaled-down version) will depend on how much we can agree on within a certain period of time,” the official added.

Reacting to Trump’s claims, External Affairs Minister S Jaishankar on May 15 said that the ongoing negotiations are complex and far from final.

Moneycontrol had earlier reported that while the first tranche of the bilateral accord may be finalised only by September or October, India is aiming to firm up talks in the next 45 days for a scaled-down version.

India and the US are currently discussing the contours of the trade pact as part of Mission 500, a broader initiative aiming to more than double bilateral trade to $500 billion by 2030.

On April 29, the commerce ministry said India and the US are betting on opportunities for early mutual wins as both sides inch closer to finalising a multi-sector BTA.

US flip-flops

Statements from the US on the trade deal have also been confusing. While Trump suggests a breakthrough, his commerce secretary, Howard Lutnick, just last week said that the BTA with India may take time, as a long list of tariff lines needs to be negotiated.

“Whatever is in the national interest, we will do when it comes to the trade deal with the US. Howard Lutnick, only a few days ago, said the deal will take time, Trump says it is a done deal, I am confused,” a third official said.

Commerce Minister Piyush Goyal, along with India’s Chief negotiator Rajesh Agarwal and a large team of Indian officials, will be in the US for almost a week-long negotiations.

The last time India's trade minister headed to the US for talks over the proposed deal was in early March, before Trump’s reciprocal tariffs were announced on April 2. The country-specific duties are currently paused until July 8.

A lot has changed since then. The trade war between the US and China has subsided as both sides dropped tariffs for 90 days to pursue a deal, India has officially denied Trump’s repeated mediation claims, and the US President, much to New Delhi's dislike, asked Apple Inc. to wean away from the South Asian nation.