New Delhi says the first tranche of its trade agreement with Washington is finalised and in legal drafting, but will not switch it on until the US settles its Section 301 tariffs and India is satisfied it holds an edge over competing suppliers.
NEW DELHI and WASHINGTON, Oct. 15, 2026 – India will not operationalise the first tranche of its bilateral trade agreement with the United States until it secures what its commerce minister called a “comparable or competitive advantage” over peer economies, senior Indian officials said on Thursday, tying the timing of a deal that Washington announced in February to the unresolved outcome of US Section 301 investigations.
Union Commerce and Industry Minister Piyush Goyal made the remark in New Delhi, according to Business Today, adding that his comments were consistent with his earlier position and that nothing had changed. Commerce Secretary Rajesh Agarwal said the two sides were close to finalising and that he expected signing “at the earliest,” while acknowledging that the agreement awaits a settled tariff structure and clarity on the Section 301 outcome. He emphasised preferential market access relative to competitors.
The first tranche is described as finalised and in legal drafting. It is not signed, and it is not in force.
For importers and exporters on both sides, the statements confirm what customs brokers and procurement teams have been working around since the summer. The headline US tariff rate on Indian goods was cut in February, but the tariff landscape underneath it has been rebuilt twice since, and the pieces that matter most to contract pricing are still in a courtroom.
How the rate got to 18 percent
The negotiation began on Feb. 13, 2025, when President Trump and Prime Minister Narendra Modi launched talks on a bilateral trade agreement.
The path from there was steep. Country specific reciprocal tariffs announced on April 2, 2025, placed India at 26 percent. Executive Order 14329, signed Aug. 6, 2025, raised the total burden on many Indian goods to as high as 50 percent, combining a 25 percent reciprocal duty with a 25 percent penalty tied to India’s purchases of Russian crude. Those measures took effect in late August 2025. Executive Order 14346 followed on Sept. 5, 2025, with an annex titled “Potential Tariff Adjustments for Aligned Partners.”
On Feb. 6, 2026, the two governments announced an interim framework. The reciprocal tariff on originating Indian goods was cut to 18 percent and the Russian oil penalty was removed by executive order, reducing the maximum burden from roughly 50 percent to 18 percent. The White House revised its factsheet on Feb. 9.
Under the framework as announced, a set of lines moved to zero reciprocal duty, including gems and diamonds, pharmaceuticals, smartphones, selected agricultural products, tea, coffee, fruits and handicrafts, although subsequent reporting indicated that broader removals for generic pharmaceuticals, gems and aircraft parts were conditional on the interim agreement and its annex. Sectors facing the 18 percent rate include textiles and apparel, leather and footwear, plastics and rubber, organic chemicals, home decor and artisanal products, and certain machinery. The framework also contemplated removal of certain Section 232 tariffs on Indian aircraft and parts and a preferential tariff rate quota for auto parts subject to the Section 232 automobile tariffs.
India’s side of the ledger included tariff cuts or eliminations on US industrial goods and on food and agricultural products including distillers dried grains, red sorghum for animal feed, tree nuts, fresh and processed fruit, soybean oil, and wine and spirits. Concessions on alcoholic beverages, cosmetics, medical devices and certain agricultural inputs were paired with minimum import price safeguards. Dairy, rice and millets were protected. On non tariff measures, India agreed to address medical device market access and information and communications technology import licensing and quotas, and to determine within six months of entry into force whether to accept US or international standards and testing.
The most quoted element was also the most heavily revised. The initial factsheet said India had “committed” to purchasing more than $500 billion of US energy, information and communication technology, coal, agricultural goods and other products. The Feb. 9 revision changed “committed” to “intends” and removed the agricultural reference. No time frame was attached. Commerce Minister Goyal had earlier indicated a five year horizon for purchases of that magnitude.
What the tariff wall actually looks like today
The gap between the announced headline and the applied reality is where exporters are losing money.
Modelled estimates from Global Trade Alert’s US tariff dataset put the trade weighted average applied US tariff on imports from India at 18.14 percent as of Oct. 15, across approximately $86.9 billion of covered trade, with a simple average of 16.32 percent and a maximum line rate of 360 percent. The distribution is wide. About 16.4 percent of the trade value enters duty free, 35 percent faces rates between 5 and 15 percent, 26.3 percent faces 15 to 30 percent, and 15.7 percent faces 30 to 50 percent.
The chapter level picture explains why Indian exporters describe the February cut as uneven. Electrical machinery, India’s largest export chapter to the United States at roughly $14.1 billion, carries a modelled average of 5.2 percent. Pharmaceutical products, the second largest at about $12.5 billion, carry 42.74 percent on average, reflecting the Section 232 pharmaceutical action layered on top of other duties. Precious stones and metals, worth roughly $11.6 billion, average 11.66 percent. Machinery averages 18.07 percent, organic chemicals 17.3 percent, articles of iron or steel 45.09 percent, textiles of chapter 62 roughly 23.5 percent, and vehicles 23.87 percent.
In other words, the single largest line of trade is barely taxed while the second largest sits above 40 percent. A negotiated headline of 18 percent describes almost none of the actual exposure facing a specific exporter.
Those are modelled applied rates from a dataset covering US import tariffs from Jan. 20, 2025, rather than an official schedule, but they capture the layering that the February framework left in place.
The Section 301 problem
What India’s commerce secretary identified as the blocking issue is a programme that applies to 60 economies, not to India alone.
The Office of the US Trade Representative opened Section 301 forced labour investigations covering 60 trading partners in March 2026 and issued final determinations on July 23, with additional duties taking effect at 12:01 a.m. Eastern time on July 24. Goods already laden aboard a vessel and in transit before that moment were exempt if entered by July 28.
The structure is tiered. Seventeen economies, including India, the United Kingdom, Mexico and Canada, pay a flat 10 percent. The European Union and Taiwan pay 10 percent net of most favoured nation duty. Japan, South Korea and Switzerland pay 12.5 percent net of MFN duty. The remaining 38 economies, including China, Brazil, Vietnam and Russia, pay a flat 12.5 percent. The lower tier was assigned to economies that ban forced labour imports, committed to such a ban in an Agreement on Reciprocal Trade, or operate a partial regime. The duty stacks on existing Section 301 duties where those apply.
Coverage is broad. The action reaches all products of the 60 economies subject to exemptions set out in an annex, which includes a universal list of 2,120 tariff codes, of which 863 are exempt as entered, with 541 codes exempt only for civil aircraft use, 700 only for pharmaceutical use and 16 only for named articles. Thirteen economies received their own exemption lists. India was not among them. Tariff rate quotas tied to US cotton and textile inputs were created for Bangladesh, Cambodia, Indonesia and Malaysia.
That last provision is precisely the sort of relative treatment Mr. Goyal appears to have in mind. India pays the lower 10 percent rate, which is an advantage over Vietnam and Bangladesh at 12.5 percent, but Bangladesh received a quota mechanism that India did not.
The entire programme is now in litigation. Importers and several US states are challenging the determinations at the Court of International Trade in a consolidated proceeding, In re Section 301 Forced Labor Cases, No. 1:26-cv-03555. Argument was heard Sept. 30. The judges pressed the government on the statutory basis for the action, and on Oct. 5 the court ordered the parties to file supplemental briefs answering specific questions, with those briefs due Oct. 16. Twenty five state attorneys general filed a separate challenge in August.
No ruling has issued. The duties remain payable. Troutman Pepper Locke noted that no recovery mechanism exists unless the court sets the determinations aside.
Why New Delhi is waiting
From India’s perspective, signing a tranche that locks in market access terms while a court may erase a 10 percent duty layer on itself and a 12.5 percent layer on its competitors would be negotiating blind.
If the Section 301 forced labour tariffs survive, India’s 10 percent rate is a meaningful edge over the 12.5 percent applied to Vietnam, Bangladesh and China in labour intensive categories where those countries compete directly with Indian apparel, footwear and furniture exporters. If the tariffs are struck down, that edge disappears and the relative calculus that justifies the tranche’s concessions changes.
The same logic runs through pharmaceuticals, India’s highest value exposure. Treatment of generic pharmaceuticals and active ingredients under the February framework was made conditional on a US Section 232 investigation. With chapter 30 carrying a modelled average above 42 percent, the difference between a favourable and unfavourable Section 232 outcome dwarfs anything in the reciprocal tariff column.
There is also precedent shaping Indian caution. The country’s negotiators watched the Supreme Court invalidate the emergency powers tariffs in February, including the Russian oil penalty applied to India, and then watched Washington reconstruct a comparable tariff wall under Sections 232, 301, 122 and 338 within months. A framework negotiated against one legal architecture can be overtaken by another.
Reactions
Indian industry bodies have broadly welcomed the reduction from 50 percent to 18 percent while pressing for speed, arguing that order books for the spring season are being placed now and that buyers need certainty on landed cost.
Analysts have been more sceptical of the purchase commitments. Several have questioned whether the $500 billion figure is achievable, noting that it would require a substantial reshaping of India’s import mix. India’s total imports in fiscal year 2024 to 2025 were $721.2 billion, of which roughly $45 billion came from the United States. Bilateral goods trade totalled $132.1 billion in that year, with Indian exports to the United States of $86.5 billion against imports of $45.6 billion. Reaching $500 billion of US purchases over five years would require roughly doubling the current run rate and sustaining it.
Analysts quoted in coverage of the framework described it as a non binding arrangement subject to revision, and pointed to earlier instances in which announced US tariff reductions were subsequently reversed.
On the US side, the administration has treated India’s alignment on industrial overcapacity as a diplomatic gain. India has joined a US led initiative on structural manufacturing overcapacity discussed at the G20, following the Global Forum on Steel Excess Capacity ministerial that adopted the Milwaukee Framework in late September, a coordinated enforcement effort focused substantially on China.
Economic impact on both sides
The macroeconomic case for and against the arrangement is contested, and recent US data has given both sides material.
Tariffs have not compressed US import demand. The goods and services deficit widened 13.7 percent in August to $105.6 billion, the largest since March 2025, as imports rose 4.3 percent to a record $420.8 billion and goods imports climbed 5.3 percent to $342.2 billion. Exports rose 1.4 percent to $315.2 billion. Capital goods imports jumped $6.2 billion to a record $146.4 billion, led by semiconductors and industrial machinery. The deficit stood at $79.8 billion in November 2024. Christopher Rupkey, chief economist at FWDBONDS, told Reuters that “trade tariffs have done nothing to reduce America’s reliance on the import of foreign produced goods.”
Trade has subtracted from US gross domestic product for three consecutive quarters, and economists estimated it could reduce third quarter growth by up to 2.5 percentage points, although consensus growth estimates remained above 3.0 percent annualised on the strength of domestic demand, particularly artificial intelligence related business equipment spending.
On prices, Federal Reserve Bank of New York economists Mary Amiti, Sebastian Heise and David E. Weinstein reported on Oct. 6 that nearly 90 percent of the 2025 tariffs passed through into US import prices within the first month, and that each one percentage point increase in average tariffs raises consumer goods prices by roughly 0.25 percent after a year, with about two thirds of the effect direct and one third indirect through domestically produced goods. By February 2026, they calculated, tariffs had added 2.9 percentage points to goods price inflation, with the price level effect peaking near 3 percent before easing to about 2 percent by August after the emergency powers tariffs ended.
For India, the stakes are concentrated rather than diffuse. Its $86.9 billion of exports to the United States represent a modest share of a $721 billion import economy but a large share of specific industrial clusters. Apparel in Tiruppur, gems and jewellery in Surat, engineering goods in the western states and generic pharmaceuticals across multiple hubs are each exposed to a single chapter level rate, which is why the uneven distribution of relief in the February framework provoked uneven reactions across Indian industry.
The sectors Indian officials expect to benefit most in the near term, according to coverage of the framework, are engineering goods, electronics, textiles, gems and jewellery, pharmaceuticals and handicrafts. Of those, electronics already enjoys a low effective rate, textiles and pharmaceuticals remain heavily exposed, and gems and jewellery sit in the middle. The composition of any gain therefore depends almost entirely on which conditional provisions are activated.
India hedges elsewhere
New Delhi is not waiting idly. India and Canada held a negotiating round in Ottawa from Oct. 5 to 9 covering 16 policy areas, with the next round scheduled for Delhi in early November. Indian officials have described the United States and Canada tracks as two of nine ongoing free trade agreement negotiations, and India separately signed an agreement with Brazil while resuming its tariff discussions with Washington.
That diversification is partly leverage and partly insurance. A supplier facing a US tariff structure that has been rewritten three times in two years has reason to broaden its buyer base, and Indian exporters in apparel and engineering goods have been actively courting European and Gulf buyers through the same period.
For US importers, the consequence is that Indian capacity is becoming less exclusively oriented toward the American market. Buyers who assumed that Indian suppliers would absorb tariff costs to preserve US volume have found less willingness to do so where alternative demand exists.
Implications for importers and exporters
For US importers sourcing from India, the operational message is that the February headline cannot be used for landed cost modelling. Duty exposure must be computed line by line, because the spread between chapters runs from zero to above 40 percent and the Section 301 forced labour layer applies on top.
Contract terms matter more than usual. Importers should check whether purchase agreements allocate tariff risk, whether they contain change in law provisions that would capture a court ruling rather than only a government action, and whether price adjustment mechanisms are symmetric. An exporter that absorbed the 50 percent burden in late 2025 may resist passing through a refund if the Section 301 duties are struck down.
Origin planning deserves fresh scrutiny. With a 2.5 percentage point differential between the 10 percent and 12.5 percent forced labour tiers, and with transshipment enforcement intensifying, sourcing shifts between Indian and Southeast Asian suppliers now carry documentation obligations that did not exist eighteen months ago.
For US exporters, the picture is more favourable but still contingent. India’s tariff cuts on American industrial goods, tree nuts, fruit, soybean oil, sorghum, distillers dried grains, wine and spirits require a formal legal framework because they engage most favoured nation commitments, and they take effect only when the tranche is operationalised. Exporters quoting into India should not price against announced concessions that are not yet law.
Companies in aerospace, data centre equipment and energy have the clearest opportunity, given the categories named in India’s purchase intentions, but should note the factsheet revision from “committed” to “intends” and the absence of any time frame.
Outlook
The near term calendar offers three markers. Supplemental briefs in the Section 301 forced labour litigation were due Oct. 16, and a ruling would remove the central uncertainty Indian officials have cited. The legal drafting of the first tranche continues, with Indian officials declining to name a signing date beyond “at the earliest.” And the broader bilateral trade agreement, of which this tranche is the first instalment, remains unconcluded.
Separately, the Office of the US Trade Representative has opened public comment ahead of the 2027 joint review of the United States, Mexico and Canada Agreement, with submissions due Jan. 12, 2027, a reminder that Washington’s trade bandwidth over the coming year is already heavily committed.
For now, the position in New Delhi is that a finalised tranche and an operational one are different things, and that the difference is being measured in Washington courtrooms.