India and the United States recently concluded a Bilateral Trade Agreement (BTA) after a prolonged negotiation process marked by tariff escalations and geopolitical tensions. The announcement of the BTA was followed by an interim order reducing tariffs on Indian exports from 50% to 18%, offering immediate relief to key sectors (Note: This reciprocal duties will now be removed in view of Supreme Court of USA ruling on 20 February 2026, however USA announced for imposition of 15% duty under Section 122). Though the full text of the agreement has not yet been released, early indications suggest that the tariff reductions will benefit several Indian export sectors and help stabilise trade relations following a period of uncertainty.  The BTA will bring new challenge to South Asia neighbours who are competing with India in the US market, since they had much lesser reciprocal duties imposed on them. 

Economic impact 

The US remains India’s largest export destination, accounting for approximately 22% of India’s total global exports. The tariff cuts are expected to benefit following sectors :

• Precious metals and stones (including imitation jewellery)  

• Pharmaceuticals  

• Apparel and textiles  

• Machinery and nuclear reactors  

Agriculture was among the most sensitive areas in the negotiations. Reports say that  India successfully protected core interests, particularly by ensuring that pulses were excluded from the revised US draft. The deal, however, expands market access for several American agricultural products which include DDGS (Distillers Dried Grains with Solubles), soybean oil and red sorghum. DDGS and red sorghum are expected to benefit India’s livestock sector by providing access to cheaper fodder. Soybean oil imports may place pressure on domestic oilseed farmers, but India already imports large quantities of soybean oil and has reduced import tariffs in recent years due to rising demand. Similarly, tariff cuts on walnuts, almonds and pistachios pose little risk because these nuts are not produced in significant quantities in India.

The US accounts for over 50% of India’s IT-BPM exports, and the services sector contributes nearly 30% of India’s formal job creation. As India faces persistent challenges in generating high-quality employment, the BTA may help reduce vulnerabilities in this critical sector by stabilising overall bilateral trade relations. 

The BTA may expand India’s trade deficit if structural bottlenecks in manufacturing are not addressed. Nevertheless, there is strong potential for growth in labour-intensive industries, particularly textiles, if India undertakes reforms to enhance competitiveness. Recent labour reforms aimed at improving compliance frameworks may help reduce existing constraints and enhance export prospects. 

India is now among the lowest-tariff economies in Asia, and the BTA—alongside the agreements with the UK and EU—provides a strategic opening to expand its global trade footprint. 

Implications for South Asia

The Indo–US deal could reshape South Asian trade dynamics. Countries such as Bangladesh, Pakistan, and Sri Lanka— which export   textile and leather are likely to face stiffer competition due to BTA. The competitive advantage could widen further because India is a cotton-producing country, while Bangladesh relies heavily on imported cotton, making its exports more cost-sensitive.  Bangladesh recently concluded a reciprocal duty free deal with the US on textiles, which may give some respite to their exporters.  Nepal, with its limited capacity and small export volumes in textiles, may also struggle to sustain competitiveness under the new trade landscape

BTA opens new opportunities for regional value chain integration. South Asian countries  could potentially export raw materials and intermediate goods to India for further processing, with the final products being exported to the US. Such integration would strengthen intra?SAARC trade linkages, improve regional supply-chain resilience and allow small and medium enterprises in these countries to benefit indirectly from India’s improved market access. 

This BTA as well as India’s other FTAs with the UK and EU brings both opportunities and challenges to South Asian nations. Governments must promote R&D in the country for enhanced productivity and value addition upgradation. However, export performance is also dependent on their supply capacity, which many of these countries struggle with.

In a judgement delivered on 20 February 2026, the US Supreme Court declared reciprocal duties under IEEPA as illegal. This will remove the anomaly of differential reciprocal duties amongst countries (since an universal rate of 15% duty on all countries will apply), yet the preferential tariff under BTA will give duty advantage to India.

The India–US Bilateral Trade Agreement represents a significant restructuring of the bilateral economic relationship. While it offers meaningful benefits for Indian exporters, , it also presents strategic trade-offs, particularly regarding India’s energy policy and regional diplomatic positioning. For South Asia, the agreement brings both risks through intensified competition and new opportunities through supply-chain integration. Ultimately, the agreement marks a pivotal moment for India’s trade policy and could reshape economic dynamics across the region in the coming years.

International trade and global value chains have been adversely impacted by shocks like COVID-19, new conflicts, climate-induced disasters and now, unilateral tariff hikes. Countries and people in weaker economic positions are most vulnerable to the ripple effects of the rapidly changing trade landscape. ESCAP and the wider UN system need to support developing countries in most need while at the same time finding new approaches and solutions that restore and revalorize regional and international development cooperation in the SDG spirit of leaving no-one behind.