13 March 2025, New Delhi: A recent report by the Indian Council for Research on International Economic Relations (ICRIER) provides a detailed analysis of the potential impact of US President Donald Trump’s proposed reciprocal tariffs on India’s agricultural trade.
Titled Trump’s Tariff Threat: Likely Impact on India’s Agriculture Trade, the report examines the evolving trade dynamics between India and the United States, particularly in the context of India’s agricultural sector, which is heavily protected by high tariffs. The findings of the report highlight the challenges India faces in balancing its domestic agricultural interests with the pressures of global trade.
The US Tariff Proposal and Its Global Implications
On February 13, 2025, President Trump signed a Presidential Memorandum proposing the imposition of reciprocal tariffs to counter foreign trade barriers on US goods. This move, aligned with his “America First” policy, has already triggered retaliatory measures from key trading partners such as Canada, Mexico, China, and the European Union (EU).
The primary motivation behind the US’s “Fair and Reciprocal Plan” is to address its growing trade deficit, which surged to USD 918.4 billion in 2024, up from USD 784.9 billion in 2023. India, with a trade deficit of USD 45.7 billion with the US, has been a frequent target of Trump’s criticism, with the US President referring to India as the “tariff king.”
During Prime Minister Narendra Modi’s recent visit to the US, Trump made it clear that India would not be exempt from the newly proposed reciprocal tariffs, which aim to match the import taxes imposed by other countries on US goods. The ICRIER report underscores that while India maintains its tariffs are within the limits set by the World Trade Organization (WTO), the US continues to push for further reductions, particularly in agricultural products. India’s simple average tariff rate stands at 17 per cent, compared to the US’s 3.3 per cent, with the gap widening significantly in the agricultural sector. India’s simple average agricultural tariff is 39 per cent, and the trade-weighted average is 65 per cent, while the US maintains a simple average agricultural tariff of 5 per cent and a trade-weighted rate of 4 per cent.
India’s Agricultural Trade: A Protected Sector
India’s high tariffs are designed to protect its domestic agricultural sector, which is a cornerstone of its economy. The report highlights that India’s agricultural tariffs are among the highest in the world, reflecting its strong protectionist policies. For instance, India imposes a 150 per cent tariff on food preparations, a 100 per cent tariff on cut chicken legs, and a 60 per cent tariff on skimmed milk powder (SMP). These high tariffs have historically shielded Indian farmers from foreign competition but have also drawn criticism from trading partners like the US.
The report also points out that India’s agricultural exports to the US, which currently face relatively low tariffs, could become less competitive if the US imposes higher duties. Key exports such as frozen shrimp, basmati rice, and natural honey, which are significant contributors to India’s agricultural trade surplus with the US, could be particularly vulnerable. For example, frozen shrimp, one of India’s largest agricultural exports to the US, currently enters the US market duty-free, but this could change if reciprocal tariffs are implemented. Similarly, semi-milled and wholly milled rice face an 11.2 per cent tariff in the US, which could be increased under the new policy.
India-US Bilateral Trade: A Growing but Uneasy Relationship
Despite the tensions, India and the US share a robust and expanding trade relationship. Bilateral trade reached USD 119.7 billion in 2023-24, with India enjoying a trade surplus of USD 35.3 billion. The US is India’s largest export destination, and India is the ninth-largest trading partner of the US. Agricultural trade plays a significant role in this relationship, with India exporting products such as frozen shrimp, basmati rice, and natural honey to the US, while importing almonds, cotton, and crude soybean oil.
However, the proposed reciprocal tariffs could disrupt this balance. The ICRIER report outlines several potential scenarios for how reciprocal tariffs could impact India’s agricultural trade. A broad tariff revision on Indian agricultural exports could reduce the competitiveness of products like frozen shrimp and rice, which currently enter the US market with low or no tariffs. This could benefit competitors like Vietnam, Thailand, and Indonesia. Targeted tariff hikes on specific products, such as dairy and processed foods, could severely impact India’s value-added agricultural exports. For instance, India imposes a 150 per cent tariff on food preparations and a 100 per cent tariff on cut chicken legs, which could invite similar measures from the US. Additionally, the US could impose stricter sanitary and phytosanitary (SPS) regulations or licensing requirements, increasing compliance costs and delaying shipments for Indian exporters.
Non-Tariff Barriers: Another Layer of Complexity
The report also delves into the issue of non-tariff barriers (NTBs), which could further complicate India’s agricultural trade with the US. India imposes NTBs in several ways, including outright bans on certain products (e.g., animal fats and oils), import licensing requirements (e.g., certain livestock products), and restrictions on government-controlled imports subject to cabinet approval (e.g., pharmaceuticals, corn under a tariff-rate quota). The US has raised concerns about India’s stringent NTBs, particularly in the dairy sector and on genetically modified (GM) crops.
India’s dairy sector, for example, is heavily protected by NTBs. The Indian government mandates that imported dairy products must originate from animals that have never consumed feed containing ruminant-derived ingredients, a requirement that the US considers excessively restrictive. While the US has expressed willingness to certify that its cattle are exclusively grass-fed, India remains firm on its regulations, citing religious and ethical concerns. Similarly, India’s regulatory framework for GM crops, governed by the Genetic Engineering Appraisal Committee (GEAC) and the Food Safety and Standards Authority of India (FSSAI), has been criticized for being slow, opaque, and politically influenced. The US, a major producer of GM crops, has continuously urged India to relax these restrictions to facilitate trade in food and feed products.
Policy Recommendations: Navigating the Challenges
To navigate these challenges, the ICRIER report suggests several policy measures. First, India could consider reducing tariffs on outlier commodities such as food preparations, walnuts, and dairy products. This would not only address US concerns but also open up opportunities for Indian products in the US market. For instance, India has already reduced tariffs on Washington apples from 50 per cent to 15 per cent, signaling a willingness to make concessions on horticulture products. Similar phased reductions could be applied to other high-tariff categories.
Second, instead of relying on tariff protection, India should focus on enhancing productivity through investments in high-yielding crops, mechanization, and improved irrigation techniques. The report highlights that India’s combined central and state agricultural investment remains below 0.5 per cent of agricultural GDP, lower than global benchmarks. Increasing investment in agricultural R&D and rationalizing existing subsidies, such as the INR 1.56 lakh crore fertilizer subsidy, could help improve productivity and global competitiveness.
Third, modernizing agricultural value chains, including cold storage and logistics infrastructure, would improve export competitiveness and help India meet global quality standards. The report suggests developing key production clusters into agri-export hubs with the help of the Agricultural and Processed Food Products Export Development Authority (APEDA) to boost India’s agri-export potential in high-value horticultural commodities.
Balancing Domestic Interests and Global Trade
The proposed reciprocal tariffs by the US pose a significant challenge to India’s agricultural trade, particularly in maintaining its trade surplus with the US. While India’s high tariffs have historically protected its domestic farmers, the evolving global trade landscape necessitates a shift towards productivity-driven competitiveness. By adopting a phased approach to tariff reduction, investing in agricultural R&D, and modernizing value chains, India can sustain its agricultural trade growth and achieve its long-term goals, including the ambitious Mission 500, which aims to double bilateral trade with the US to USD 500 billion by 2030. As global trade tensions escalate, India’s ability to balance domestic interests with international trade dynamics will be crucial in navigating the challenges ahead.
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