In a historic week for global commerce, the trade scenario for India has been fundamentally redrawn.
Following the conclusion of the India-EU Free Trade Agreement on January 27, 2026, US President Donald Trump announced on Monday, February 2, that the United States has reached a breakthrough agreement with New Delhi.
This deal effectively dismantles a period of intense trade friction, specifically targeting the punitive tariff regime that had climbed to as high as 50% following troubled bilateral negotiations last year.
Mechanism of the India-US accord
The agreement centres on a dramatic reduction of reciprocal tariffs from a baseline of 25% down to 18%.
Crucially, the deal also rescinds an additional 25% "punitive" duty that had been imposed in August 2025 as a penalty for India’s continued energy trade with Russia. Under the new terms, the effective overall tariff rate on most Indian goods drops to 18% immediately.
This move is contingent on a significant strategic move by New Delhi, which needs to be conformed from the Indian side.
As described by President Trump, India has agreed to cease its purchases of Russian oil, a move intended to help end the conflict in Ukraine, and shift its energy procurement toward the United States and potentially Venezuela.
In return, India has committed to a "Buy American" framework, pledging to purchase over $500 billion in US energy, technology, coal and agricultural products.
Significantly, as of early January 2026, India continues to be a primary destination for Russian crude, trailing only China with imports averaging $1.18$ million barrels per day. While Russia maintains its status as a leading energy partner for the nation, a shift is underway as several Indian refiners actively seek alternative sources to balance their portfolios and mitigate over-reliance.
Strategic relief and the "China+1" revival
Market analysts and brokerages, including Citi and BofA, view this development as a critical "de-risking" event for the Indian economy.
By securing back-to-back deals with both the European Union and the United States within a single week, India has effectively addressed the tail risk of geopolitical isolation.
The deal is expected to revive the "China+1" manufacturing theme, which had recently stalled due to trade uncertainty.
With an 18% tariff rate, India now holds a competitive advantage over regional rivals like Vietnam and Bangladesh, where tariffs often hover around 20%, and a massive edge over China, which faces US tariffs exceeding 34%.
This clarity is expected to trigger a surge in Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), stabilising the rupee and boosting domestic manufacturing.
Sectoral impact and the export rebound
The reduction in tariffs offers an immediate lifeline to India’s labour-intensive export sectors.
The textile and garment industry, which counts the US as its largest destination, is the primary beneficiary.
Companies like Indo Count Industries and Kitex, with 70% revenue exposure to the US, along with Gokaldas Exports (67%) and Welspun India (61%), are poised for significant margin recovery.
The auto ancillary and engineering sectors are also set for a boost.
Companies such as Sona BLW (40% US exposure) and Bharat Forge (25%) will see improved competitiveness as the cost of entry into the American market falls.
Furthermore, the seafood industry, led by Apex Frozen Foods (63% exposure) and consumer goods firms like LT Foods (39% exposure) are expected to see a sharp rebound in export volumes as the "tariff overhang" is removed.
India-EU "Mother of All Deals"
The US breakthrough arrives just as India begins to implement its landmark agreement with the European Union.
Described as the "biggest FTA ever," the India-EU deal aims to double bilateral trade by 2032.
Under this framework, the EU has committed to eliminating duties on 97% of Indian export lines immediately, including textiles, leather and gems.
In return, India has granted the EU unprecedented access to its domestic market. This includes a gradual reduction of car tariffs from 110% to just 10% and the elimination of duties on machinery, chemicals and pharmaceuticals.
This dual-track success with the world’s two largest democratic trading blocs signals a new era for India as a central pillar of the rules-based global economic order.
A new era of global alliances
The White House and India's Ministry of External Affairs have signalled that while the initial announcements are framework agreements, they represent a permanent shift in alignment.
As President Trump noted, the deal reflects a personal rapport between the leaders to "get things done," effectively ending a period of economic "hazing" and replacing it with a strategic partnership intended to counter-balance China's dominance in global supply chains
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