Government Examining Duty Reductions to Strengthen Trade Relations
New Delhi, March 26: The Indian government is actively assessing the removal of basic customs duties on US crude oil and diamonds, as well as a reduction in automobile tariffs, under the proposed India-US Bilateral Trade Agreement (BTA). This ongoing analysis, conducted by the Finance Ministry and NITI Aayog, aims to enhance trade relations between the two nations while ensuring economic balance.
While these tariff revisions are aligned with the broader BTA negotiations, government officials clarified that India is not treating April 2—the deadline for former US President Donald Trump’s reciprocal tariff plan—as a factor in these deliberations.
Targeted Duty Reductions: A Strategic Approach
Assessing Tariff Lines Without Compromising Domestic Industry
The Indian government is evaluating tariff structures across multiple sectors, focusing on areas where duty reductions can be implemented without negatively impacting domestic manufacturers.
Highlight in Tariff Reductions:
✔ Diamonds: India imports rough and polished diamonds from the US, processes them, and then re-exports them. Lower duties could enhance this value chain.
✔ Crude Oil: India imports significant quantities of crude oil from the US, and a tariff cut could facilitate greater energy trade.
✔ Automobiles: The US has repeatedly criticized India’s high import duties on automobiles, which can exceed 100% for certain categories.
“India’s exposure to US markets is overall less. Items like diamonds are imported, but we add value before exporting them back. Crude oil and automobiles are other areas under review. However, tariff cuts will be negotiated and not implemented universally,” a senior official stated.
“Mission 500”: India-US Trade Talks in Full Swing
Doubling Bilateral Trade to $500 Billion by 2030
The BTA negotiations are part of “Mission 500,” a joint initiative aiming to more than double India-US bilateral trade in goods and services to $500 billion by 2030. This commitment was formalized during Prime Minister Narendra Modi’s visit to the US on February 13.
Current Trade Snapshot:
✔ Bilateral trade in goods and services in 2023: $190.08 billion
✔ India’s crude oil imports from the US (2023-24): $5.02 billion (down 50% YoY)
✔ India’s diamond imports from the US (2023-24): $3.34 billion (down 35% YoY)
The two nations are expected to finalize the first tranche of the BTA by fall 2024, focusing on mutually beneficial trade terms across multiple sectors.
US Pressures India Over High Import Tariffs on Automobiles
India Reviewing High Duties on US Auto Exports
One of the key concerns for the US in the trade negotiations has been India’s high import duties on automobiles, which can exceed 100% for some categories. This has been a major sticking point in trade discussions, with Washington pushing for lower duties to boost US automobile exports.
Currently, India imposes a basic customs duty of ₹1 per metric tonne on crude petroleum oil, while refined products like petrol and diesel attract a 2.5% duty, along with additional cesses and surcharges.
Similarly, polished diamonds face a 5% import duty, while rough diamonds remain duty-free.
India’s Internal Study: Evaluating 900 Tariff Lines
Balancing Duty Reductions With Economic Strategy
The Finance Ministry and NITI Aayog are conducting a comprehensive review of 900 tariff lines to identify potential areas for duty reductions. The goal is to enhance India’s trade competitiveness while protecting key domestic industries.
“We are analyzing all tariff lines for India-US trade negotiations. Nearly 900 tariff lines are still under review. The study also includes sectors where India has domestic manufacturing capacity,” an official confirmed.
The impact of duty reductions across these tariff lines is being calculated carefully to ensure economic balance.
Energy Trade: Strengthening India-US Collaboration
US Emerging as a Leading Energy Supplier to India
During Prime Minister Modi’s recent visit to the US, both nations agreed to increase energy trade, positioning the US as a key supplier of crude oil, petroleum products, and liquefied natural gas (LNG) to India.
✔ The US has become one of India’s primary crude oil suppliers, and reducing import duties could further boost energy trade.
✔ Discussions are ongoing regarding long-term energy partnerships to enhance India’s energy security and diversification strategy.
Final Decision on Tariff Reductions Still Pending
Negotiations to Continue Before Finalizing First BTA Tranche
While India has signaled openness to reducing duties in gems and jewelry, automobile parts, textiles, and chemicals, no final decision has been made. The government is carefully assessing economic implications before committing to any reductions in the first tranche of the trade deal.
These negotiations will play a crucial role in shaping India-US trade relations, with a focus on securing reciprocal benefits for Indian exports in the US market.
