India's Strategic Move to Fast-Track US Trade Agreement

India is taking significant steps towards finalizing a bilateral trade agreement (BTA) with the United States by fall 2025. In a bold move to expedite negotiations, India has expressed willingness to consider duty-free imports from the US across various sectors, including those under the Production Linked Incentive (PLI) schemes.

This initiative could lead to the removal of the 26% reciprocal tariff imposed on India, marking a pivotal moment in trade relations between the two nations. The PLI programme, with a budget allocation of Rs 1.97 lakh crore, spans 14 industries, including mobile phones, drones, and pharmaceuticals, setting the stage for enhanced cooperation.

Strict Rules of Origin to Ensure Fair Trade

The proposed duty-free access will come with stringent rules of origin, requiring 30-40% value addition and tariff heading modifications. These measures aim to prevent third-country products from entering India under the guise of US imports, ensuring that the benefits of the trade agreement are mutual and equitable.

Government departments are actively seeking industry input on tariff reductions, with various associations urging for accelerated BTA negotiations. The goal is to double the bilateral trade target to $500 billion by 2030, a testament to the growing economic partnership between India and the US.

Opportunities and Challenges Ahead

Experts like Bipin Sapra of EY India believe that the Indian industry, bolstered by post-manufacturing incentives like PLI, is ready to embrace lower tariffs. This scenario presents an opportunity for India to enhance its competitiveness in global value chains and boost the 'Make in India' initiative.

However, US authorities are keen on enforcing strict value addition requirements to safeguard against indirect imports from third countries. Certain sectors may need to negotiate higher value addition levels to meet these criteria.