A thaw after the freeze - a test of New Delhi's pragmatism
and sovereignty, in today's transactional world
Background Information
After World War II, the United States shaped the global
economic order in ways that benefitted not just America but the world at large
too. The US was instrumental in promoting free trade, open markets, and rule
based economic activity through institutions like the IMF, World Bank, GATT,
and the WTO. Washington promoted free trade, assuming what many scholars called
an “altruistic hegemon” role. American leadership had the necessary power,
which it wielded, with the aim being global stability. This was not charity; it
was strategic foresight, backed by economic might and military security
guarantees that stabilised global commerce for decades. However, in the
aftermath of the COVID pandemic in 2020, which led to disruption in global
supply chains. This was accentuated further by the Russia-Ukraine conflict. In
the mid 2020s trade faltered globally. However, the Indo-US trade continued to
grow with a trade surplus in India’s favour.
In the FY 2023-24, pre-Trump 2.0 era, the US and India were
major trading partners. The US was India’s largest goods destination, with
total goods exports and imports valued at 77.5B USD and 42.2B USD,
respectively. India exported 41.6B USD of services and imported 26.5B USD as
imports from the US. India exported a wide range of goods — electric &
electronic equipment, gems & jewellery, pharmaceuticals, engineering
products, petroleum products, textiles, chemicals, and IT & software-related
services, business process/ consulting, engineering & R&D and others. The
US exported aircraft, machinery, energy products, and tech equipment to India.
According to US government data, India was Washington’s 10ᵗʰ largest goods
trade partner in 2024, and the U.S. ran a substantial goods trade deficit with
India, to the tune of 35.3B in goods and another 15.1B USD in services, making
it a combined trade surplus of 50.4B USD in India’s favour. In FY 2024-25, the
data for goods exports and imports to/ from US registered a growth to 86.5B USD
and 45.3B USD. This growth was registered in FY 2024-25. President Trump’s
inauguration was held on Jan 20, 2025, during the last quarter of the Indian FY
2024-25.
Trump 2.0: From WTO Rules to Bi-lateral Deals
President Donald Trump was elected to office for his second
term on the Make America Great Again (MAGA) plank, with the promise of bringing
manufacturing back to the US, creating jobs, besides other promises like
immigration reforms. In keeping with his promise to the American people, he dispensed
with much of the old multilateral architecture, preferring bilateral,
transactional deals, even with US close allies and NATO partners. International
rules no longer mattered. What mattered to him were immediate, measurable
outcomes: trade balances, tariff adjustments, and strategic alignment.
In Trump’s worldview, which is loud, personal, executive
orders based and media-centric, solving world conflicts was not just
geopolitics, but was also about bringing peace in war torn zones like Palestine
and Ukraine. He publicly tied his posture on Ukraine to broader international
cooperation, and he saw trade as a direct lever to achieve geopolitical
outcomes.
India’s continued purchase of Russian oil; a practical
decision based on energy security and price-competitiveness, suddenly entered
the crosshairs of this transactional approach. Washington signalled that trade
penalties could be linked directly to energy sourcing choices. In 2025, US
threatened, and thereafter imposed exceedingly high tariffs on Indian goods,
including punitive duties tied to Russian oil imports. These acts were not based
on routine trade disputes; they were tools to exert geopolitical pressure
through tariff regimes, targeted explicitly at changing India’s strategic
economic behaviour.
Weaponising Trade: The Tariff Squeeze
In 2025, under executive orders and tariff actions, Indian
exports to the United States faced reciprocal tariffs that, in practical
effect, reached levels as high as 50 % on certain product categories; a
combination of base tariffs and penalties linked to Russian oil procurement.
This situation was unprecedented. Tariffs exceeding 25 %
were rare between major economies, and between more so between close partners,
such as India and the US. Yet under Trump’s pressure strategy, tariffs became
both a lever and a symbol of leverage, designed to push India toward alignment
with American geopolitical priorities, which included energy diversification
away from Russian supplies, and toward Western sources. India’s response was
measured. There was no public grandstanding against the US. But Indian
exporters felt the squeeze in terms of costs, uncertainty, and market access
disruptions.
Then came the Pahalgam terrorist attack in April 2025, followed
by Operation Sindoor, in May 2025; a military operation in retaliation to the
terrorist attack in Pahalgam, which was sponsored by Pakistan based terror
organisation, as per Indian intelligence sources. The operation was halted by India,
on May 10, after having achieved the goals of the operation. President Trump
announced that he had arbitered the cease-fire between India and Pakistan.
Pakistan at once accepted, and confirmed this announcement, and also nominated
President Trump for the Nobel Peace Prize. New Delhi did not immediately
respond to the above announcement. PM Modi later confirmed in parliament that “no leader in the world
asked us to stop Operation Sindoor". This complicated the geopolitics
between the two, and further chilled high-level diplomacy between New Delhi and
Washington.
Post-Operation Sindoor: A Deep Freeze
While the details of Operation Sindoor are beyond this
op-ed, its effect on bilateral relations was palpable. Between late 2025 and
early 2026, senior diplomatic exchanges stalled, strategic dialogues were
postponed, and the personal rapport between leaders, which are always fragile,
were under strain, a deep freeze seemed to hit the Indo-US relationship. Trade
negotiations, which had been grinding forward, despite tensions, slowed
further.
Global economics forces have their own way of thawing a
deep freeze in any relationship, and it did so in this relationship too.
Political realities prompted a thaw.
Political Realities Force a Thaw
Behind closed doors, the freeze was hurting both sides.
American businesses, from pharma buyers to tech firms,
flagged that punitive tariffs on India would raise costs for US consumers,
disrupt supply chains, and fuel inflation, precisely the economic pressures
Trump could least tolerate domestically.
Meanwhile, in India, exporters, industries, and MSMEs
warned that prolonged tariff escalation would depress growth, squeeze margins,
and undermine confidence at a time when the global economy was in flux.
Faced with real economic pressure and political realities
at home, both capitals pivoted towards accommodation, and the Interim Trade
Framework was announced.
The Interim Trade Framework
On Feb 07, 2026, the US and India jointly announced that
they have reached a framework for an Interim Agreement regarding “reciprocal
and mutually beneficial trade”. The “framework reaffirms the countries’
commitment to the broader U.S.-India Bilateral Trade Agreement (BTA)
negotiations, launched by President Donald J. Trump and Prime Minister Narendra
Modi on February 13, 2025, which will include additional market access
commitments and support more resilient supply chains”. The joint statement further
affirmed that the Interim Agreement stands for “a historic milestone in the two
countries’ partnership, demonstrating a common commitment to reciprocal and
balanced trade based on mutual interests and concrete outcomes”. This is
not a classic free trade agreement; it is a pragmatic de-escalation, and
renewal of engagement, aptly called a framework rather than a final treaty.
Under this arrangement:
US tariffs on Indian goods were effectively reduced in many
categories. Firstly, the additional 25% penal tariff tied to Russian oil
purchases was rescinded, effectively lowering trade barriers and signalling a
willingness to reset tensions. The effective duty rate on affected products,
which had been as high as 50%, with the penal tariff included, was now cut down
to 18% in key cases.
India and the US set up sectoral working groups, which will
focus on manufacturing, technology, critical minerals, and digital trade, with
an aim to explore deregulation, market access, and joint initiatives.
Also, the two nations will work towards further expanding
market access opportunities through the negotiations of the BTA. The United
States affirms that it intends to take into consideration, during the
negotiations of the BTA, India’s request that the United States continue to
work to lower tariffs on Indian goods.
India also agreed to limit duty concessions on specific
agricultural imports, including 5 lakh tonnes of dried distillers’ grains under
a capped quota, preserving domestic sensitivities.
Importantly, Indian officials clarified that the US-India
trade target figures (such as a $500 billion in five years import target from
the US) are aspirational rather than binding commitments, emphasising that
trade decisions will be guided by Indian economic needs.
The thaw in the Indo-US relationship signified by the tenor
of the positive bilateral agreement is significant, with both sides acknowledging
that the agreement is mutually
beneficial, leading to a pause on punitive tariffs, a path toward broader
cooperation, and a space to develop a comprehensive deal, the BTA, later.
Why This Framework Works, for Now
For the US, the interim agreement preserves leverage
without full concession. Washington can claim it has moderated tariffs in
exchange for Indian commitments to enhanced market access and strategic
cooperation — while keeping pressure points available if India backslides on
agreed priorities.
For India, the framework eases immediate tariff burdens,
safeguards sensitive policy domains (such as agriculture and energy autonomy),
and creates diplomatic space to recommence strategic conversations without
sacrificing core sovereignty. It resets a volatile negotiation into a
structured dialogue.
In short, the interim trade agreement gives India time and space
for negotiations and is not a surrender.
A Golden Opportunity for ‘Make in India’
One of the most underrated elements of this interim
framework is what it implies about value addition and supply chain integration.
Instead of a simplistic export-more model, the framework’s emphasis on dialogue
in manufacturing, technology, and skills shows a shift toward higher
value-added trade.
This is an opportunity of a lifetime for the ‘Make in India’
initiative by the Modi government, if only India can meet the challenges of upgrading
manufacturing quality, train and upskill the labour force, encourage MSMEs to
integrate into the global supply chains. All these initiatives are needed to
deepen the domestic value addition, which is needed to help India diversify
exports not only to the US, Europe, but globally too.
With the above in place, this interim agreement could
become a springboard, much bigger than a mere agreement.
Hard Negotiations and Red Lines
What makes this framework notable is what didn’t happen, listed
as follows.
India did not commit to sweeping agricultural market
openings beyond limited quota concessions.
There was no formal obligation to cease Russian oil
purchases permanently, and Indian officials emphasised national interest in
energy decisions.
Data localisation, digital sovereignty, and strategic
autonomy remained in India’s control.
These were India’s red lines, and they held.
The negotiations were tough because both sides understood
the stakes: national interest, economic stability, and long-term strategic
posture.
The Way Forward
The interim framework should not be seen as the destination
for India. Instead, it marks the beginning of a crucial phase in which India
must make strategic decisions to shape its future. Among the most important
steps are investing substantially in skills development and technological
advancement, which will enable the country to move up the value chain and
increase its global competitiveness.
Strengthening the capacities of Micro, Small, and Medium
Enterprises (MSMEs) is essential for these businesses to compete
internationally. Enhancing logistics and port infrastructure will further
improve India's competitiveness by ensuring efficient movement of goods. At the
same time, India should focus on diversifying its export markets, even as it
continues to deepen trade relations with the United States.
While the framework provides India with a runway for
growth, the responsibility for take-off rests entirely with India itself.
Success will depend on the country's ability to make bold investments,
implement necessary reforms, and pursue opportunities with determination.
Conclusion
The Indo-US Interim Trade Framework signed on Feb 07, 2026,
does not stand for a sweeping shift in global trade history, as it is not a
comprehensive free trade agreement. Rather, it reflects the realities of the
current era, which are characterised by a pragmatic, transactional, and
strategic approach to trade.
The days when post-World War II ideology guided free trade
policy have passed. Today, trade is shaped by realpolitik, with tariffs used as
instruments of leverage, and alliances carefully balanced in response to
shifting geopolitical dynamics.
In this unsentimental and practical environment, India has
managed to stay the course. The country has reduced immediate pressures and
secured the breathing space it needs, all while safeguarding its strategic
autonomy. Amidst today’s pragmatic and transactional global trade landscape,
India has successfully upheld its policy direction. It has navigated current
challenges and held firm to its long-term aims.
If India takes full advantage of this opportunity, by
strengthening domestic capabilities, expanding into new markets, and moving up
the value chain, then the interim framework could be remembered not as a pressure
point, but as a catapult for future growth.
Time is of the essence. The world is watching closely. India’s real journey to greatness begins now.
Comments