Why India-US trade talks stalled again?

New Delhi: Ongoing negotiations between India and the United States to establish a comprehensive bilateral trade agreement have stalled once more, according to senior officials from both nations. Following a framework agreement signed in February which reduced punitive tariffs on Indian goods from 50% to 18%, progress has been hindered by several factors.

The Supreme Court's recent ruling invalidating US President Donald Trump's use of emergency powers to impose worldwide tariffs has left a 10% baseline rate in place. However, a final deal between the world's two largest economies remains elusive.

Finance Minister Nirmala Sitharaman acknowledged this week that trade talks have reached a standstill with limited room for maneuver. Both sides have not provided detailed explanations for the delay, but recent complications have emerged. A new US law permits up to 100% tariffs on Indian goods due to New Delhi's continued purchase of Russian oil, despite efforts to reduce such purchases. This potential levy contradicts India's aim to secure more favorable tariff terms compared to peer economies like Vietnam and China.

Additionally, the United States is still conducting Section 301 trade investigations on several nations over alleged excess industrial capacity, which is necessary to determine the final tariff that Indian goods would face. Until this investigation is completed, it is unclear what specific tariffs will apply to Indian products.

The strained bilateral relationship between India and the US has been further strained by recent events. These include a US military attack on a ship off Oman that resulted in the death of three Indian seafarers and India's rejection of Trump's claims of brokering a ceasefire with Pakistan. India's largest export market, the US, has seen a resilient performance in terms of exports, with India's goods exports to the United States increasing to $42.79 billion in the April-August period from $40.39 billion a year earlier.

However, analysts warn that without a trade deal, India could face higher US tariffs from the ongoing trade probe and the purchase of Russian oil, potentially impacting businesses, market sentiment, and the Indian currency, which is already near record lows.