Mumbai, February 3: India and the United States have officially reached a breakthrough trade agreement, significantly lowering barriers between the world’s two largest democracies. Following a high-level dialogue between Prime Minister Narendra Modi and US President Donald Trump, Washington announced on February 2, 2026, that it would immediately reduce reciprocal tariffs on "Made in India" goods from 25% to 18%.

The agreement comes as a major relief to Indian exporters who had been navigating a volatile 50% tariff environment since mid-2025. In exchange for the tariff reduction, India has pledged to purchase approximately USD 500 billion worth of US goods, specifically focusing on energy, agriculture, and technology. This "first tranche" of the deal is expected to stabilize bilateral relations and provide a much-needed boost to the manufacturing sectors in both nations, signaling a shift toward deeper economic integration over political friction. S Jaishankar in US, To Meet US Secretary of State Marco Rubio Today.

India-US Trade Deal: Key Outcomes of the Agreement

The centerpiece of the deal is the reduction of the US reciprocal tariff to 18%. For the Indian economy, this move is expected to restore competitiveness for labor-intensive exports. The primary components of the deal include:

  • Energy Shift: India will phase out Russian crude oil purchases, replacing them with US energy exports and potentially sourcing from other American-aligned partners.

  • Market Access: India will lower trade barriers for American farmers, granting easier access to its massive domestic consumer market for US agricultural products.

  • Investment Surge: The deal sets a roadmap for bilateral trade to hit a target of USD 500 billion, focusing on coal, electronics, and specialized technology.

Sectors Poised for Growth

Industry bodies, including the Federation of Indian Export Organizations (FIEO), have hailed the deal as a "game-changer." Several key sectors are expected to see immediate benefits from the 18% tariff cap:

  • Textiles and Apparel: As the US is India’s largest market for textiles, lower duties will improve margins for MSMEs and large-scale manufacturers alike.

  • Engineering and Auto Parts: Previously facing punitive duties, Indian engineering goods and automotive components are now expected to see a surge in orders.

  • Electronics and Semiconductors: The pact stabilizes supply chains, encouraging US tech giants to expand "Make in India" manufacturing hubs.

  • Gems and Jewellery: Reduced costs are expected to restore buyer confidence in the US retail market for Indian-processed diamonds and gold.

Following the announcement, Indian equity markets reacted with historic gains. The BSE Sensex surged over 3,600 points, while the Nifty 50 jumped nearly 5%, led by gains in energy, technology, and export-heavy stocks. Analysts suggest that the deal removes the "hanging sword" of trade uncertainty that had weighed on the Indian Rupee and investor sentiment throughout late 2025.

This deal marks a departure from the "tariff-war" footing seen in 2025, where the US had imposed 50% duties, comprising a 25% baseline and a 25% penal tariff, citing India's trade with Russia. By aligning on energy and defense, both nations are moving toward a 10-year Strategic Partnership Framework. India-US Trade Deal: Donald Trump To Cut Tariffs on ‘Made in India’ Products to 18%; Nirmala Sitharaman, Ashwini Vaishnaw Hail Landmark Agreement.

While the "first tranche" addresses immediate tariff relief, negotiators are expected to continue talks through 2026 to resolve stickier issues, such as intellectual property rights and digital trade regulations. For now, the agreement provides a stable foundation for India to integrate more deeply into US-led global value chains.

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(The above story first appeared on LatestLY on Feb 03, 2026 12:20 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).