U.S., EU trade deals to sharpen India’s competitive edge in global markets
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On February 1, the BSE Sensex crashed nearly 1,500 points in response to finance minister Nirmala Sitharaman ’s proposal to increase the securities transaction tax on derivatives in the Budget for 2026-27. The benchmark index saw a tepid rise the next day. However, the jitters gave way to a blockbuster recovery on February 3.
The choppy post-Budget market sentiment found an unlikely saviour in U.S. President Donald Trump as he took to Truth Social to announce the much-anticipated trade deal with India “effective immediately”. As the U.S. slashed tariffs on Indian imports to 18% from 50%, the Sensex registered its biggest-ever intraday rally of 4,205 points to close at 83,739.13, up 2,072.67 points, or 2.54%.
India, in exchange, has promised to reduce its tariffs and non-tariff barriers on the U.S. to zero, halt Russian oil purchases, and buy over $500 billion worth of “U.S. energy, technology, agricultural, coal, and many other products”, Trump said in his Truth Social post. Soon after, PM Narendra Modi acknowledged the developments in a social media post. While the tariff cuts required little clarification, the nitty-gritty, specifically the timeline to implement India’s zero tariffs and increase its annual imports from the U.S. by 10-fold from the current $50 billion, remain hazy.
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But that didn’t spoil the party. After all, India was among the nations slapped with the highest tariff burden of 50%, ever since Trump introduced a range of “reciprocal” (country-specific) and sectoral tariffs that hit 66% of India’s U.S. exports that were worth $86.5 billion in FY25.
With the tariff cut, however, Indian goods, especially from the labour-intensive sectors of textiles, seafood, and gems and jewellery—cumulatively accounting for the bulk of India’s exports to the U.S.—will have an edge over its competitors, including China and Bangladesh. “Most of us were giving a discount to U.S. customers to compensate for the penalty tariff. Now that’s gone. [Moreover] India gets a 2% advantage on tariffs compared to competing countries,” says Pallab Banerjee, MD of Pearl Global Industries Ltd , a leading apparel exporter and a key manufacturing partner to leading brands such as Inditex (Zara), PVH Corp. (Tommy Hilfiger and Calvin Klein), Walmart, and Target.
Rajiv Memani, president of Confederation of Indian Industry (CII), sees the tariff cut as a significant step forward in the strategic economic partnership between the two nations. “This move will enhance the global competitiveness of Indian products while catalysing manufacturing growth, employment creation, and the development of resilient supply chains.”
The significance of Trump’s announcement was amplified by the fact that it came within a week of the India-European Union Free Trade Agreement (India-EU FTA) that concluded on January 27. While it is too early for specifics, the “mother of all deals”—as European Commission president Ursula von der Leyen termed it—will see the EU cut or eliminate tariffs on 98% of Indian goods, according to information available in the public domain. In the EU deal, too, India’s gains will be most visible in the labour-intensive sectors of garments, footwear, marine products, and gems and jewellery where tariffs are high. India will cut or eliminate tariffs on about 97% of EU exports, with reductions phased in over 7-10 years. India will also move to zero tariffs on a wide range of agri-food and consumer products, and phase out duties on most processed foods, chemicals, machinery, and electronics, among others.
The trade deals, once implemented, are expected to give India preferential entry to two of the world’s most developed and biggest markets. The EU and the U.S. comprise 30% of trade in goods and services and 43% of global GDP.
However, unlike the trade deal with the U.S., the India-EU FTA will be effective only after it is formally signed sometime this year. The tariffs will be reduced in a multi-phased manner over several years. On the other hand, while the India-EU FTA is more comprehensive, better clarity is awaited on the India-U.S. deal.
The two nations are expected to sign a detailed legal agreement by mid-March, said commerce minister Piyush Goyal. “Considering Prime Minister Modi’s friendship with President Trump, India has received the best trade deal among neighbouring countries,” the minister had told Parliament earlier.
India and the U.S. began trade negotiations in March 2025. Informal talks continued even after official rounds of negotiations were halted after Trump’s unilateral tariffs. Hence, a favourable deal is reassuring. But what will make it truly great is if India can protect the interests of its farmers, workers, entrepreneurs, and exporters. Only the fine print will lay out the timeline, the implementation plan, and Modi’s commitment to increase India’s imports multifold.
But for now, the stock market’s thumbs-up reflects the larger sentiment on the deal.