US President Donald Trump and Prime Minister Narendra Modi. (ANI Photo)
US President Donald Trump and Prime Minister Narendra Modi on Monday said that India and the US have reached a trade deal as Washington has agreed to lower tariffs on India to 18 per cent from 50 per cent that came into effect on August 27. This effectively gives India a slight edge over Vietnam, Bangladesh, Pakistan and other South East Asian countries that are facing 19 per cent American tariffs. The European Union, the UK, Japan and South Korea have rates between 10 and 15 per cent.
“Out of friendship and respect for Prime Minister Modi and, as per his request, effective immediately, we agreed to a Trade Deal between the United States and India, whereby the United States will charge a reduced Reciprocal Tariff, lowering it from 25% to 18%. They will likewise move forward to reduce their Tariffs and non-tariff barriers against the United States to zero,” Trump said in a post on Truth Social.
Minutes later, Modi, in a post on X, said:” Wonderful to speak with my dear friend President Trump today. Delighted that Made in India products will now have a reduced tariff of 18%. Big thanks to President Trump on behalf of the 1.4 billion people of India for this wonderful announcement.”
Trump said that India has agreed to stop buying Russian oil and buy much more from the US and potentially Venezuela, and has agreed to purchase $500 billion worth of US energy, agriculture, coal and other products under the trade deal.
This comes a day after India proposed several measures in the Union Budget that could directly benefit American companies. Finance Minister Nirmala Sitharaman, during her Budget speech, announced a tax holiday till 2047 to any foreign company that provides cloud services to customers globally by using data centre services from India, a move that directly benefits top American companies in expanding their foothold in India.
India had also stepped up energy imports from the US and had signalled more openness to imports of sectors under the UK and EU trade deals that were earlier behind a steep tariff wall.
The Budget had proposed the elimination of duty on aircraft components and nuclear-generation equipment that would benefit American exports. The US is the global market leader in the aviation sector and is one of the largest exporters of nuclear reactor components. For the domestic sector, Sitharaman announced a host of measures, particularly in the textile sector, to boost productivity by coming out with capital support for textile machinery in clusters and a targeted scheme to boost the availability of input items – a longstanding challenge.
As part of the bilateral trade agreement negotiations, the US had sought greater market access for its companies looking to establish their data centres in India. The demands are understood to have included tax breaks, affordable access to resources like land, energy and water, and duty exemptions on some imports. With the announcement in the Union Budget for giving foreign companies a tax holiday until 2047 for setting up data centres in the country, the government has acted on one of the US’s key demands.
Several American companies have announced massive investments in setting up data centres in India to fuel artificial intelligence’s insatiable hunger for such infrastructure. Last month, Union IT Minister Ashwini Vaishnaw said that private investments in India’s AI infrastructure could double from last year’s $70 billion by the end of the ongoing financial year (FY26).
The Budget proposed zero customs duty on nuclear-generation equipment, absorber rods, and project imports for all registered nuclear plants until 2035, signalling long term market access. In the aviation sector too, India has eliminated duties on aircraft components and Maintenance, Repair and Operations (MRO) inputs, benefiting US aerospace firms and engine and maintenance suppliers.
With the passage of the Sustainable Harnessing and Advancement of Nuclear Energy for Transforming India (SHANTI) Act, 2025 and opening the sector for private players to enter the operations side of the tightly-governed nuclear power sector, the government had already addressed a key US demand.
