India and the US have announced a framework for an Interim Trade Agreement (ITA), marking a reset in bilateral trade relations and laying the groundwork for a phased move toward a comprehensive Bilateral Trade Agreement (BTA). The US has decided to lower reciprocal tariffs to 18% on over USD 30 billion of Indian exports, a sharp reduction from the earlier 50% cumulative burden and a rate that is more favourable than that applied to key regional competitors. Additionally, subject to the successful implementation of the ITA, nearly half of India’s exports could face zero reciprocal tariffs. Labour-intensive sectors, electronics, and pharmaceuticals are likely to emerge as key beneficiaries. The withdrawal of the additional 25% surcharge linked to Russian crude imports provides near-term relief, though the issue remains contentious. The framework also targets non-tariff barriers and signals deeper strategic engagement. At the macro level, reduced trade uncertainty supports market sentiment and introduces a modest upside bias to our economic growth projections for FY26 and FY27, while risks remain tied to further progress on the trade deal and evolving global conditions.
