By CA Surekha Ahuja
The India–US trade agreement announced on 2 February 2026 must be read without diplomatic filters. In economic terms, it is not liberalisation, not partnership, and not a win. It is damage control executed under tariff coercion — rational, necessary, and costly.
The 18% Tariff: A Permanent Reset, Not Relief
The deal avoids a punitive 25–50% US tariff, but replaces it with a uniform 18% duty on all Indian exports.
This is critical because:
-
India previously operated under near-zero MFN access
-
18% becomes a structural export tax, not a temporary adjustment
-
Pricing models, margins, and long-term contracts now reset permanently
For labour-intensive exports, this is not volatility — it is institutionalised margin compression.
Russian Oil Exit: Inflation Re-Imported
India’s commitment to halt discounted Russian crude is the deal’s most inflationary consequence.
Between 2023–25, Russian oil:
-
Shielded India from global price spikes
-
Contained CPI
-
Preserved fiscal flexibility
The forced pivot to US crude and LNG structurally raises energy costs, reopening:
-
Fuel inflation risks
-
Excise-duty trade-offs
-
Input cost escalation across manufacturing
This is macro risk transferred into domestic prices.
$500 Billion Import Commitment: External Balance Stress
The headline $500 billion “Buy American” pledge is aspirational, but economically directional.
Its real implication:
-
Dilution of India’s trade surplus with the US
-
Pressure on the current account deficit
-
Greater dependence on capital flows and services exports
It narrows India’s external shock-absorption capacity.
Zero Tariff Path: Policy Inflection Point
India’s agreement to progressively remove tariffs and non-tariff barriers on US goods marks a clear departure from protection-led industrial policy.
Short-term outcome:
-
Intense competition in autos, dairy, agri, machinery
-
Cost pressure and consolidation
Long-term outcome:
-
Efficiency gains — but only for firms that survive
This is forced competitiveness, not calibrated reform.
Relative Advantage ≠ Absolute Gain
India’s only strategic upside is relative tariff positioning:
-
India: 18%
-
Vietnam / Bangladesh: ~20%
-
China: 34%
India becomes less uncompetitive, not inherently competitive.
This edge delivers results only if logistics, compliance, and scale execution follow immediately.
Final Assessment
This agreement is not a success story.
It is a rational retreat to prevent systemic export damage.
-
It buys time, not advantage
-
It embeds costs, not concessions
-
Its verdict depends entirely on post-deal execution
If India uses this window to fix cost structures, diversify markets, and scale manufacturing, history will call it realism.
If not, it will stand as an expensive concession signed under pressure.
For businesses, exporters, and advisors, one conclusion is unavoidable:
The baseline has changed. Planning must begin from here — not from the past.
