Information of the contracts reached between US President Donald Trump and Indian Prime Minister Narendra Modi have not yet been made public. However, it appears that Modi may have struck a deal that might not be in line with India’s overall financial and strategic objectives, based on the two officials ‘ joint press conference following their discussions.
However, while socially symbolic, the individual bonhomie between Modi and Trump does arrive at a higher price for India in the small, medium and long term.
First, India and the US have come to an agreement to increase their current US trade volume from$ 90 billion to$ 500 billion over the next five years. Although this goal may appear ambitious and advantageous to India at first glance, it is not always beneficial to India.
This agreement includes imposing reciprocal tariffs in order to lower the US trade deficit, in contrast to the preferential terms the US extended to China in the 1990s. In 2023, India exported$ 83 billion of goods to the US while it imported$ 40 billion worth.
In services, India exported$ 36 billion and imported$ 29 billion, resulting in a trade surplus of around 50 % in India’s favor. However, the US will start levying the same duties on Indian goods as it does on American goods by introducing a reciprocal tariff.
This action effectively puts an end to India’s preference for developing countries under World Trade Organization ( WTO ) regulations. In the end, the cost of Indian goods and services will rise in the US, and the cost of American goods will be less expensive there. This change is likely to cause significant economic losses for India as a result of overturning India’s trade surplus with the US.
Second, Trump announced that India would reduce tariffs and increase imports of American goods, including defense equipment, oil and gas, to address the US’s trade imbalance. Under this agreement, India must import more oil and gas from the US.
Historically, India has relied on Iraq, Russia, Saudi Arabia, and the United Arab Emirates for its oil imports. Russia’s oil imports, which accounted for 40 % of its total imports in 2022 and are still around 35 %, have significantly increased.
Russia’s crude oil is currently being purchased by India at prices that are significantly below market rates. In contrast, shipping costs from Russia and the Middle East will be double what they would be for importing oil from the US, which will cost the same.
Indian refineries must upgrade their facilities in order to refine American crude oil, which adds to the costs. Because most of the logistical costs are directly impacted by oil prices in India, these factors are likely to significantly increase the price of oil, further aggravate inflationary pressures.
Third, Trump revealed that the two sides agreed to a 10-year defense partnership. Although it appears to be aimed at strengthening their strategic partnership, it also appears to be intended to tilt the trade balance further in America’s favor.
The agreement allows India to co-produce primary weapons there, but the high costs of private US defense manufacturers will make this arrangement less advantageous for India.
Additionally, the US intends to export military equipment to India to replace the less expensive Russian weapons India currently relies on with significantly more expensive American alternatives, such as anti-tank missiles and F-35 stealth fighter jets.
While framed as part of a strategy to counter China’s global influence, these weapons are considered older-generation and less efficient than China’s advanced systems. Moreover, their effectiveness has been called into question by the evolving nature of modern cheap battery-powered drone warfare, as seen in the Russia-Ukraine conflict.
Fourth, the two nations have a signed 16-year-old civil nuclear energy agreement that allows them to advance. This agreement will allow India to use US-designed atomic reactors for civilian purposes. These reactors have long been criticized in India as being outdated and expensive.
At a time when China, India’s regional rival, is developing fourth- and fifth-generation reactors, India is importing second-generation technology from the US. This agreement offers little benefit to India beyond helping to balance the US trade deficit given the rapid advancements anticipated in the technology of fission and fusion nuclear reactors after 2030.
India’s overall impact on all time horizons is likely to be negatively affected by these agreements. The Indian rupee is likely to contract even more as imports from the US rise, adding to India’s inflationary strains in the near future. The rupee’s depreciation in relation to the US dollar has already drawn criticism from Modi in the Indian Parliament.
In the medium term, while American products such as electronics, garments and footwear may become cheaper, flooding the Indian market, most Indians—particularly lower-middle-class and poor households—will struggle with declining purchasing power.
As they compete against heavily subsidised American agricultural and industrial goods, small- to medium-sized Indian farmers and businesses will face serious difficulties.
Modi’s  ,” Atmanirbhar Bharat”  , ( self-reliant India ) initiative risks being undermined in the long term as Indian goods are forced to compete with cheaper American imports. In terms of labor costs, India’s competitive advantage will be overshadowed by the introduction of reciprocal tariffs. If Europe adopts similar tariff policies, India’s international trade prospects could deteriorate further.
Does India get nothing? Not quite. There are a few limited benefits. First, US liquefied natural gas ( LNG ) imports are priced competitively, making it slightly cheaper than gas from West Asia. Second, Tahawwur Rana’s extradition to India has been approved by the US. Modi can tout this as a significant victory domestically, given Rana’s involvement in the 2008 Mumbai attacks.
However, the larger economic and strategic concessions India must make will overshadow these gains. To meet the demands of his “friend” Trump, Modi will need to reevaluate his economic and trade policies, primarily by lowering tariffs on US goods and services and increasing imports.
These adjustments contrast sharply with Modi’s plan of action under Trump’s first administration, which was to increase India’s strategic partnership with the US in the hopes that factories would be relocated from China to India.
In Trump’s second term, however, the balance of gains and losses appears skewed in America’s favor, with India likely to lose more than it stands to gain.
Bhim Bhurtel is on X at @BhimBhurtel