New Delhi, February 3, 2026 — A freshly inked trade pact between the United States and India promises to lower tariffs on Indian exports to 18 percent, down from 25 percent, a move that arrives less than a week after India secured a major free trade agreement with the European Union.
This deal signals a potential shift in global trade dynamics, offering India new avenues for economic growth and potentially reshaping its relationships with key partners.
- The U.S.-India agreement includes a commitment from India to curtail purchases of Russian crude oil, pivoting toward U.S. and potentially Venezuelan supplies.
- India has pledged to acquire $500 billion in U.S. products spanning agriculture, technology, energy, and other sectors.
- Analysts predict India’s manufacturing sector will be the initial major beneficiary, with potential boosts for IT and pharmaceutical industries.
- The deal follows a landmark free trade agreement between India and the EU, dubbed “the mother of all deals” by European Commission President Ursula von der Leyen.
Q: What’s the core benefit of the new U.S.-India trade deal?
A: The agreement lowers tariffs on Indian exports to the U.S. from 25% to 18%, creating more competitive opportunities for Indian businesses and fostering stronger economic ties between the two nations.
The announcement came via a post on TruthSocial, where the former president stated India had agreed to cease buying Russian crude oil, a practice previously met with a 25% retaliatory tariff. The shift will see India sourcing oil from the U.S. and potentially Venezuela, alongside the $500 billion purchasing commitment.
Manufacturing Gains and Regional Competition
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While many specifics of the U.S.-India deal are still being finalized—in contrast to the comprehensive EU-India agreement—investors anticipate a significant benefit for India’s manufacturing sector. The country’s labor-intensive export industries, including textiles, clothing, leather, jewelry, toys, and furniture, stand to regain lost ground against regional competitors.
James Thom, senior investment director of Asian equities at Aberdeen Investments, highlighted the advantage for smaller and medium-sized companies. The new 18% tariff rate is more favorable than Pakistan’s 19% and those of Vietnam and Bangladesh, both at 20%.
Analysts suggest the EU agreement may have spurred the U.S. to accelerate the deal with India, positioning India more competitively against China and aligning it with its Association of Southeast Asian Nations peers.
Improved Relations and Sector-Specific Benefits
Bernstein analysts Venugopal Garre and Nikhil Arela noted that while tariffs may persist in sectors like autos and metals, the information technology industry is poised to benefit from improved U.S.-India relations.
“I.T. has the largest exposure to the US, and while the deal primarily covers manufactured goods, our outlook was that improved US-India relations — even if short-lived — would reduce scrutiny on I.T. services and lower the risk of further punitive actions, such as additional taxes,” Garre and Arela wrote.
They recommended a ‘buy’ strategy based on a short-term rebound in Indian equities, particularly in financials, IT, and telecommunications, with manufacturing and trade-linked stocks also expected to recover.
Growth Trajectory Fueled by Trade
Monday’s agreement builds on the momentum of India’s “landmark” FTA with the EU. The EU deal substantially reduces or eliminates tariffs on a wide range of goods and services.
Fitch Ratings’ research unit BMI focused on the pharmaceutical sector, pointing to the elimination of 11% tariffs on EU drug imports—including cancer therapies, biologics, and GLP-1s—totaling $1.2 billion in 2024.
BMI projects India’s pharmaceutical market will grow from $31.2 billion in 2025 to $45.7 billion by 2035, representing a 10-year compound annual growth rate of 5.2% in local currency. The agreement is expected to diversify export destinations and unlock new opportunities in the EU market, reversing a recent stagnation in India’s pharmaceutical exports.
“This recent stagnation reflects ongoing market access challenges and regulatory complexity. We believe the FTA will reverse this trend, as the deal is expected to align regulatory compliance processes, reducing approval timelines and lowering administrative costs associated with product registration and licensing. This will position exports to resume their growth trajectory.”
Russ Mould, investment director at A.J. Bell, observed that the trade deal boosted market sentiment, with the Sensex rising 2.5% following the announcement. U.K.-listed investment trusts with exposure to India also saw gains on the FTSE 250, including a 5.6% increase for Ashoka India.
“India has been a rich source of returns for investors over the past few decades, but Trump’s tariff regime stalled momentum in the Sensex index,” Mould said. “Investors will now be wondering if the trade deal effectively removes the shackles on the market and breathes new life into it, rather than simply resulting in a short-term relief rally.”
Nifty 50.
S&P Bombay Stock Exchange Sensitive Index.
Ashoka India Investment Trust.
— CNBC’s Chloe Taylor and Michael Bloom contributed to this story.
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