Challenges and opportunities in the trade talks with the US

India has resisted Washington’s push for stricter WTO-plus IPR norms.

The recently finalised Terms of Reference (ToR) for the India-US Bilateral Trade and Investment Agreement (BTIA) lay out a detailed roadmap for negotiations across 19 critical chapters. These chapters cover key areas including trade in goods and services, government procurement, intellectual property rights (IPRs), investment protection, and dispute settlement mechanisms, among others.

This comprehensive framework underscores both nations’ commitment to resolving longstanding trade imbalances and barriers, with the shared objective of expanding bilateral trade from the current $200 billion to $500 billion by 2030.

However, the negotiations face significant challenges due to the complexity of issues involved-ranging from tariff reductions to IPRs and rules of origin. Successfully navigating these challenges will require strategic compromises from both sides to ensure the trade deal’s fruition.

Risks from US seeking tighter origin rules

When it comes to trade in goods, the US seeks substantially improved market access for automotive, alcoholic beverages, petrochemicals, dairy and fresh farm produce. India, in contrast, seeks improved market access for apparels, electronics, gems and jewellery, leather, chemicals and pharmaceuticals, plastics, solar panels and horticultural products.

However, those who think that the India-US trade deal will automatically result in easier access to American markets, overlook two critical factors:

1. High import dependency: Many Indian export products have high import contents i.e. they use imported inputs, mostly from China, be it KSMs (key starting materials) & APIs (active pharmaceutical ingredients), textile fabrics, electronics parts and components, or solar cells.

2. Tighter rules of origin: As the major target of Trump’s trade war is China, the US is likely to impose stringent rules of origin (ROO) to prevent Chinese (intermediate) goods entering into the US via India.

This risks diluting the BTIA's potential benefits. Therefore, New Delhi must insist on flexible sourcing norms, otherwise, Indian merchandise won’t be able to utilise post-BTIA tariff reductions, due to origin rules restricting use of Chinese inputs and/or requiring substantial domestic transformation. In the longer run, tighter ROO will create opportunities to deepen India’s manufacturing base, but in the short run, it may risk de facto denial of post-BTIA preferential market access.

Reject proposals to evergreen patents

India has resisted Washington’s push for stricter WTO-plus IPR norms, due to concerns about its potential impact on its generic pharmaceutical sector. Indian pharmaceutical companies fear that it will lead to ever-greening of patents — extending patent protection by making minor changes to existing products — thereby capping their growth opportunities. Besides, it will jack up the cost of medicines for both domestic and foreign buyers.

Thus, India must reject any attempt to ever-green. However, that doesn’t mean it doesn’t need to tighten its IPR rules, and especially their enforcement. Only a stronger IPR protection regime could induce risk-averse Indian companies to boost R&D investments - needed to drive up innovation. Indian industry invests 0.3% of the GDP in R&D compared to a world average of 1.5%.

Soften farm impact by rationalizing ‘outlier tariffs’

Agriculture remains a politically sensitive issue for both India and the US. However, it will be naive to think that just lowering the tariffs on industrial goods will be enough to placate Trump’s administration. India should be willing to lower import barriers on key agricultural products to help the trade deal conclude. One way to do that is to rationalise outlier — those above 50% — agricultural import tariffs.

Along with that, India should consider applying tariff rate quotas on sensitive food items, for instance, wheat or dairy products. To seek improved market access in the US for Indian mangoes, grapes, pomegranates and bananas, India can offer to import large quantities of corn from the US, without harming competing domestic producers as corn is increasingly being diverted to produce ethanol which is driving up its prices as demand exceeds supply. That in turn is jacking up the costs of feeds for the Indian poultry industry.

Lowering tariffs on automobiles will help India

Another contentious issue is import tariffs on automobiles. Indian automakers worry that lowering import duties will flood the market with foreign vehicles, but this fear is exaggerated. India’s car market is highly price-sensitive, and driven by consumer preferences for affordable, fuel-efficient vehicles with robust after-sales support.

History shows that high import barriers have not been the only hurdle for foreign automakers. Several American companies, including Ford and General Motors, attempted to overcome prohibitive import barriers by setting up manufacturing operations in India. Despite significant investments, they struggled to adapt to local consumer preferences, manage cost structures, and compete with established domestic players and eventually exited India, demonstrating that simply opening the market does not guarantee success to foreign companies.

American automakers have been losing ground even in their home market to European, Japanese, and Korean competitors. Their product portfolios, which often emphasise larger vehicles and different performance metrics, are not well-suited to India's cost-conscious consumers, who prioritise fuel efficiency and affordable maintenance. Imported vehicles, aside from a handful of high-end models, are unlikely to gain significant traction in India, where the mass market is dominated by locally manufactured vehicles tailored to Indian needs.

With increasing pressure from trade partners (US, EU, UK) for India to reduce import tariffs, it’s time for Indian automobile companies to embrace competition as defending high import tariff walls would be increasingly difficult. Moreover, by offering to cut import tariffs on automobiles, India can secure the large US market for pushing its export of auto components.

Last but not the least, to give a big push to its exports, India needs export-promoting FDIs. However, the lack of investment protection treaties exposes foreign investors to regulatory risks - this is one major reason why India is not able to attract enough FDI inflows. In fact, net FDI inflows into India have started to contract— it plummeted to US$ 1.4 billion in FY 2024-25 (April-Jan) compared to US$11.5 billion in FY 2023-24 (April-Jan). Thus, it makes sense on part of India to show flexibility to get a robust investment protection framework under India-US BTIA to help improve India’s attractiveness as an investment destination for American companies looking for an alternative to China amidst intensifying China-US trade and tech war.

To sum up, the India-US BTIA presents a pivotal opportunity to transform bilateral trade, but its success hinges on resolving key asymmetries. New Delhi must secure flexible ROO clauses to protect export competitiveness against tightening China-focused sourcing restrictions. Agricultural tariff rationalisation and auto sector concessions should be strategically traded for enhanced market access for Indian merchandise. Crucially, embedding robust investment protection mechanisms will be essential to reverse declining FDI trends and position India as a reliable China+1 manufacturing hub.