Having sold itself the diversification mantra, India should remain focused on building leverage

The India-EU FTA was pushed over the finish line last month largely because both sides have been battered by Trumpian fury and ritual humiliation the past year. Ironically, it has now largely propelled the US to lift punitive tariffs against India.

The India-EU deal is a full-grown trade agreement, negotiated painfully over years. It brings long-term predictability in regulations and policies to two complementary economies, unlocking trillion-dollar markets. Tariff integration and predictability within the India-EU sphere will bring both into more diversified global value chains, making it generally more equitable.

The India-US agreement, on the other hand, is not really an FTA, but more of a tariff agreement. Basically, it removes punitive tariffs on India - highest in the world - to a more manageable level. The EU deal will go through a legal scrub and parliament ratification. The US deal is a presidential executive order and joint statement with India.


India and the US are in negotiations for a deeper and longer lasting trade deal. A legally viable document should be available to both sides in a couple of months. At the end of that exercise, we can expect many more sectors to go down to zero tariffs.

It opens up a huge swathe of India's market to US products - and that's good. Protectionism has been the bane of the Indian economy for decades, kept alive by self-serving business houses and bureaucrats. If we can prevent dumping, Indian companies could do with some serious competition.

Also, the US market has opened up once again for Indian exports, particularly in labour-intensive sectors. For everyone saying we'll now pay 18% tariffs when we were paying about 3% earlier, there seems to be collective amnesia that we were paying 50% tariffs for the past six months. In any case, Indian breast-beating about 'selling' ourselves to the US has been a near-constant refrain forever.

Back in 2006, when the US Congress passed the Hyde Act clearing the US-India nuclear deal, many Indians went into paroxysms of despair, bemoaning the gifting away of 'sovereign choice'. Twenty-five years later, the only damage to the nuclear deal was caused by India to India. BJP then was accusing Congress of selling the country down the river. Congress is repaying BJP in the same coin today. India's real negotiators are tough cookies, and they cut across governments.

The country has turned the page on a dreadful year with a few big international wins. The US was the biggest market for Indian exports. We now have added the massive EU market. We should soon have a Canada agreement and, geopolitics permitting, a Gulf (GCC) deal, perhaps, in a year.

The US deal would seem unfair if we were comparing apples to apples. We aren't. The prime target of this deal is to reduce US tariffs on Indian goods, particularly in comparison with India's competitors. That's happened. In 2025, GoI made what both sides said was 'the best offer' to the US, driving Indian tariffs down to zero on almost two-thirds of sectors. That has been the best way GoI can cut India's self-imposed barriers.

India Inc. is, by and large, risk-averse. Over the years, it has specialised in getting governments to erect more barriers. They like swimming in the Indian pond and hate opening new markets, especially those that don't speak English and don't eat dal. To that extent, the fact the EU is opening up - and maybe Chile soon -will challenge Indian business. As it should.

The US deal, paradoxically, makes the EU one more attractive because of the former's unpredictability. Trump is likely to wake up one morning and rediscover his dislike of India. The MAGA universe is hostile to Indians anyway. Nevertheless, the US is India's biggest market, and some measure of that will be restored. The EU needs to move fast to ratify the India deal if we have to make the most of the current momentum. Meanwhile, the US may try to dial back its open hostility to Europe, even as underlying problems persist.

Strategically, the India-US kiss-and-make-up is somewhat of a relief. Ripple effects of the political pressure have been growing. India has neutralised China, Pakistan and Bangladesh's tariff advantage, which gives Indian creators on social media gloating rights. It will be easier for India to negotiate better terms with other countries. More importantly, India is back in the room on conversations around critical minerals, semiconductors and hi-tech.

India will join Pax Silica this month. It had joined the Mineral Security Partnership (MSP) in 2023, but did precious little there. So, let's not hold our breath on this new one. But India would be stupid to brush away the experiences of 2025. We have been derisking from China for some time. It's important to derisk from the US, too. For instance, we may work with the US on critical minerals, but simultaneously set up mining and processing capabilities with Japan and the EU.

Has the US relationship been restored? To some extent, yes. But India has long memories, and the US will detect strained smiles in India for some time. Having sold itself the mantra of diversification, India should play smarter - remain focused on building leverage so that 2025 doesn't happen in 2026.