Sensex, Nifty jump over 5% as India-U.S. trade deal cuts tariffs to 18%

India has gained a tariff advantage in the United States after Washington reduced reciprocal tariffs on Indian imports to 18%, effective February 02, following a trade agreement between the two countries. The reduction lowers tariffs from the earlier 25% level and applies immediately to Indian goods entering the U.S. market.

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The revised tariff structure was announced after discussions between Prime Minister Narendra Modi and U.S. President Donald Trump. The change positions India more favourably compared to several export-driven economies in Asia that compete with India in the U.S. market.

India Is Ahead of Other Countries in the Region When It Comes to Export

The new tariff rate means that Indian exports now have to pay less in duties than some of their main competitors in the region. The 34% tariffs on Chinese goods are still in place, which is much higher than India's new rate. Bangladesh and Vietnam have 20% tariffs, while Indonesia and Pakistan have 19% tariffs. Other economies that rely on exports also have higher tariffs.

The new structure gives India a tariff difference of 1 to 16 percentage points over other countries that compete with it. This change changes how Indian goods are priced in the U.S. compared to goods made in other Asian manufacturing centers.

Additional U.S. Tariff Rolled Back on Indian Imports

Alongside the reciprocal tariff reduction, the United States also confirmed the removal of an additional 25% tariff that had earlier been imposed on Indian imports in connection with India’s purchase of Russian oil. A White House official confirmed that the rollback applies alongside the revised reciprocal tariff arrangement.
The official clarification stated that the removal of the additional duty is linked to India ceasing purchases of Russian oil. With this change, Indian goods are no longer subject to the extra tariff layer that had raised overall duties beyond the reciprocal tariff framework.

Immediate Impact on Trade Between India and the U.S.

The lower tariff is now in effect and applies to all shipments of Indian goods to the U.S., both those that are already on their way and those that will be sent in the future. The new rates don't say which sectors are exempt or added, but they do apply to the broader reciprocal tariff mechanism that the U.S. government announced.
The U.S. has changed India's place in its import structure by lowering the tariff burden. However, it has not changed the existing trade agreement framework beyond the announced measures. The cut applies to all Indian exports that are covered by the reciprocal tariff policy.