THE sea of green on the benchmark indices on Tuesday underlined how much importance Indian businesses attach to having good trade relations with the United States of America. Trigger of the stock market surge was the announcement of the possibility of a trade agreement between India and the US by President Mr. Donald Trump on his social media handle. It was a hint of a deal getting sealed between the two countries, maybe in a short duration from now. The much-awaited and much-publicised trade deal is still a work in progress but given the general mood of exuberance in ruling class of both the countries, India and US seem very close to inking a formal agreement to end months of acrimony and speculation. Mr. Trump made the first move to unveil the announcement with an immediate discount in tariffs. The US has brought down the reciprocal tariff on Indian goods to 18% from the current 25% (plus 25% penalty for buying Russian oil).

 

Prime Minister Mr. Narendra Modi has picked this aspect of Mr. Trump’s announcement to thank the US President but has stopped short of calling it a final trade deal. This calibrated space left in the statements leaves a huge room for speculation on the nitty-gritty of the trade deal. A formally inked document might still take some time as the negotiations enter the last lap. The social media statement by Mr. Trump announcing the tariff cut should be taken as the starting point of the last leg of negotiations between Indian and the US teams. One might see it as a climbdown by America or simply a smart negotiation tactic to break a frustrating deadlock. The lowering of tariff to 18% has sent cheers in the Indian markets as exporters to the US have heaved a sigh of relief. The difference of 7% is set to bring them back into the game as the tariffs on goods from other competitors make Indian exports cheaper for the US markets. It is a win-win situation for both India and America though a lot of clarity is still awaited on the future course of the announcement.

 

The biggest beneficiary of the lower tariffs will be India’s textile sector. It had taken a huge hit after Mr. Trump raised tariffs in a sudden fit of rage intending to punish India for buying Russian oil. The sector lagged behind in competition with Vietnam, Bangladesh and other textile exporters as these nations enjoyed lower tariffs than what was heaped on India. The anomaly seems to have been finally removed and the Indian textile sector is set to claw back to its position of primacy in the US markets. There are other export-heavy sectors too which will be benefitted once the deal gets inked. However, there still needs clarity from both governments on the exact terms and conditions of the proposed trade deal. The devil lies in the details which are yet to be divulged by both Washington and New Delhi. All the finer points will be out after the initial euphoria over the thaw in Indo-US relations settles down.

 

The occasion is definitely an achievement for Indian diplomacy which stood firm in face of acidic reactions from functionaries of the US administration and illogical diatribe by the US President as he made lofty claims. India’s patience and its strategy to tap multiple trade partners has definitely paid off but there is still some clarity needed before New Delhi goes to town as a winner in the proposed trade deal. The social media post by Mr. Trump announcing sealing of a trade deal was a unilateral announcement making some vague claims. Reduction of tariff was one aspect of the announcement but there have been claims about India stopping purchase of Russian oil and instead opting for oil from the US and Venezuela. There is also a condition of India committing to 500 billion USD purchase of American goods. New Delhi has so far not made any statement on these conditions raising doubts over this commitment’s credibility. Simply put, there is too much ambiguity over the deal. Better to wait for the air to clear.