US-India trade deal was down to the ‘last 1pc’. Why is it still stuck?

On October 18, U.S. Secretary of State Marco Rubio is set to visit India for the second time this year, as Washington aims to strengthen ties with a strategic partner despite ongoing disagreements over a long-awaited trade deal. Rubio will meet senior Indian officials, but will avoid the capital city, Delhi, during his visit, which will focus on investment and energy.

The primary obstacle to the deal is the inability to finalize the agreement, with experts citing several factors, such as President Donald Trump's tariff hikes, concerns over energy imports, and U.S. closer relations with India's rival, Pakistan.

The trade pact was agreed upon in February, with the U.S. pledging to lower tariffs from 25% to 18% and India agreeing to reduce duties on industrial and agricultural goods. However, the deal has not been finalized and signed due to legal uncertainties surrounding Trump's tariff plans following court challenges, which have rendered their basis unclear.

India is also wary of potential new trade measures by the U.S. that could negatively impact it, including an investigation into unfair practices and a new law permitting up to 100% tariffs on countries purchasing Russian oil. Trump recently signed an executive order waiving those sanctions.

Negotiations have encountered several hurdles, with both governments previously expressing optimism about finalizing the interim deal. However, recent comments from Indian Finance Minister Nirmala Sitharaman and U.S. Trade Representative Jamie Spears suggest that progress has stagnated. India is particularly cautious about exposing its farmers to increased competition from foreign markets, while the U.S. seeks greater access to Indian energy supplies and competitive tariff rates with regional rivals like Vietnam.

Indian Trade Minister Piyush Goyal stated that the first phase of the deal is in its final stages, but it will not be operational until India gains a competitive advantage over its peers.

Despite a 21% increase in goods exports to the U.S. in August, reaching $8.3 billion compared to the same period a year earlier, the surge has been a positive for the Indian economy. The high energy prices due to the Middle East conflict have caused turmoil for the nation. If tariffs were to be reinstated, it could negatively impact India's growth outlook, market sentiment, and put pressure on the already-weakening rupee.