The United States is India’s largest trading partner with bilateral trade touching $131.84 billion in 2024–25, contributing nearly 20% of India’s total exports. However, the recent 25% tariff hike by the US, combined with pressure on India’s energy ties with Russia and strategic divergences, has brought turbulence in a partnership once hailed as a defining relationship of the 21st century.
Challenges in the India–US Relationship:
Economic Challenges:
- Tariff Shock: The 25% tariff threatens India’s labour-intensive sectors like textiles, gems & jewellery, and pharma, risking $40 billion export loss and a potential 1% GDP reduction in 2025–26.
- Dependency Risk: India constitutes just 3% of US imports, yet the US absorbs 20% of Indian exports, showing asymmetric vulnerability.
- Currency Impact: Post-tariff rupee depreciation raises import costs, fuelling inflation.
Strategic Challenges:
- Energy Dependence: India’s oil imports from Russia invite US sanctions pressure, complicating strategic autonomy.
- Defence Frictions: Despite foundational agreements such as LEMOA, COMCASA, BECA, India is cautious of US military-industrial dominance.
- Geopolitical Divergences: Trump’s outreach to Pakistan, trade penalties, and criticism of India’s global ambitions highlight trust deficits.
Structural Tensions:
- US unease with India’s assertive foreign policy in the context of Russia, Iran, BRICS–QUAD balancing).
- US demands for wider market access in dairy/agriculture threatening MSMEs.
- Rise of scepticism in Washington about India’s “illiberal turn” and ‘India First’ approach.
Implications for India’s national interests:
- Trade Diversion Risk: US importers may shift to Vietnam/Indonesia in textiles and seafood.
- Supply Chain Uncertainty: Disruptions threaten FDI inflows and smartphone exports (e.g., Apple’s India expansion).
- Diplomatic Strain: India’s rejection of Trump’s mediation in Kashmir and continued ties with Russia have sharpened fault lines.
- Energy Security Dilemma: US pressure to cut Russian oil imports conflicts with India’s energy needs. Currently, Russia supplies over 35% of India’s crude imports. Overdependence on US-aligned suppliers could make India vulnerable to geopolitical oil shocks.
- Defence Frictions: Despite LEMOA, COMCASA, BECA, and high defence trade of $25 bn cumulative, India fears being tied to US supply chains. Non-renewal of the 10-year Defence Framework Agreement would weaken institutionalised defence ties.
- Trust Deficit: Trump’s Pakistan outreach such as new trade deal and hosting Pakistan Army Chief fuels India’s security concerns. US criticism of India’s Russia/Iran ties undermines New Delhi’s strategic autonomy narrative.
- Quad & Indo-Pacific Cooperation at Risk: Tariff and sovereignty disputes could erode mutual trust within Quad cooperation (India–US–Japan–Australia) at a time of growing China challenge.
- Global Positioning: India’s balancing role in BRICS, SCO, and continued Russia–Iran ties may reduce its perceived reliability in US eyes. However, this also reinforces India’s multipolar image globally.
Measures needed:
Economic Measures:
- Market Diversification: Expand exports to EU, GCC, ASEAN. Eg: India–EU FTA negotiations.
- Boost Competitiveness: Accelerate PLI schemes, logistics reforms, and skill development.
- Targeted Relief: Subsidies, tax rebates, and credit facilities for vulnerable export sectors like textiles, marine products.
- Export Innovation: Encourage R&D and product diversification for high-value exports.
- Currency Management: Proactive RBI intervention to stabilise the rupee and FPI flows.
Strategic Measures:
- Balance Strategic Autonomy: Engage US while safeguarding ties with Russia and BRICS.
- Deepen Defence Cooperation Selectively: Advance Reciprocal Defence Procurement (RDP) without compromising autonomy.
- Diplomatic Recalibration: Rebuild access to US decision-makers, manage differences through quiet diplomacy.
Conclusion:
India must turn present friction into an opportunity to strengthen economic resilience and recalibrate its strategic posture, ensuring that short-term shocks do not derail a long-term defining partnership.
+1 Value addition:
- Currently, Russia supplies over 35% of India’s crude imports.
- The 25% US tariff could slash India’s exports by $40 billion, reducing GDP by 1% in 2025–26.
- Textiles sector which employ 45 million may face large-scale layoffs due to margin erosion.
- India received $125 billion remittances in 2023–24, of which U.S. is a major contributor.
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