The Big Picture: A New Era in India US Trade Relations
India and the United States kicked off a landmark trade partnership on February 13, 2025, when Prime Minister Modi and President Trump launched the US India COMPACT (Catalyzing Opportunities for Military Partnership, Accelerated Commerce & Technology) for the 21st Century. At the heart of this initiative sits Mission 500, an ambitious goal to more than double total bilateral trade to $500 billion by 2030.
The two governments committed to negotiating the first tranche of a mutually beneficial, multi sector Bilateral Trade Agreement (BTA) by fall of 2025. By April 2025, Vice President Vance and Prime Minister Modi finalized the formal Terms of Reference for the broader BTA negotiations. On February 6, 2026, both countries announced an Interim Agreement framework with concrete tariff reductions and market access commitments. The formal legal trade agreement is expected to be signed by mid March 2026.
For NRIs living in the United States or running businesses that bridge both economies, this is one of the most consequential trade developments in decades. Let us walk through exactly what has happened, what it means for your money, and how to position yourself.
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Timeline of Key Developments
| Date | Milestone | Source | |------|-----------|--------| | February 13, 2025 | Joint Statement launching US India COMPACT and Mission 500 | Ministry of External Affairs, Government of India | | April 2025 | Terms of Reference for BTA finalized | US Trade Representative (USTR) | | February 6, 2026 | Interim Trade Agreement framework announced | Joint Statement (US Embassy India / MEA) | | Mid March 2026 (expected) | Formal legal trade agreement to be signed | India's Commerce Secretary Rajesh Agrawal |
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What the Interim Agreement Actually Changes
Tariff Reductions on Indian Goods Entering the US
This is the headline number every NRI exporter and investor should know: tariffs on Indian products entering the US will drop to 18% under the Interim Agreement. This represents relief from higher tariffs that had been imposed (the US imposed 50% tariffs on Indian goods as of August 2025 during negotiations).
The sectors that benefit from reduced US duties include:
- Textiles and apparel
- Leather and footwear
- Plastic and rubber goods
- Organic chemicals
- Home décor and artisanal products
- Select machinery
- Handicrafts
- Marine products
What India Offers in Return
India will scrap or lower Most Favored Nation (MFN) duties on the full range of American industrial products and a wide selection of farm and food items, including:
- Dried distillers' grains
- Red sorghum for animal feed
- Tree nuts
- Fresh and processed fruits
- Soybean oil
- Wine and spirits
Non Tariff Barriers Getting Addressed
Beyond tariffs, India agreed to tackle several long standing non tariff barriers:
- Medical devices: India will address barriers to trade in US medical devices
- ICT goods: India will eliminate restrictive import licensing procedures that delay market access or impose quantitative restrictions on US Information and Communication Technology goods
- Standards recognition: Within six months of the agreement entering into force, India will determine whether US developed or international standards are acceptable for US exports in identified sectors
- Food and agriculture: India agreed to address non tariff barriers to trade in US food and agricultural products
- Conformity assessment: Both countries intend to discuss their respective standards and conformity assessment procedures for mutually agreed sectors
Digital Trade and Digital Services Tax
The February 2026 interim agreement does not include a commitment from India to remove its digital services tax (equalization levy). The original US factsheet claimed India would remove this 2% levy on foreign digital companies, but the revised version dropped this claim entirely. India has committed only to negotiate bilateral digital trade rules, preserving its policy space on digital taxation and data localization.
Rules of Origin
The agreement will establish rules of origin ensuring that benefits accrue predominantly to the United States and India. NRIs with manufacturing operations should pay close attention to these provisions, as they will determine whether goods manufactured in India qualify for preferential tariff treatment.
Contingency Provisions
If either country changes its agreed upon tariffs, the other country may modify its commitments. Both nations also commit to work towards further expanding market access through the broader BTA negotiations. The US affirmed its intention to consider India's request that the US continue to work to lower tariffs on Indian goods during BTA negotiations.
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Nuclear Energy and Technology Cooperation: A Game Changer
The February 2025 Joint Statement included a major commitment on nuclear energy. Both leaders agreed to fully realize the US India 123 Civil Nuclear Agreement by working together to build US designed nuclear reactors in India through large scale localization and possible technology transfer.
India's Budget announced amendments to the Atomic Energy Act and the Civil Liability for Nuclear Damage Act (CLNDA). Both sides agreed to establish bilateral arrangements addressing civil liability issues to facilitate Indian US industry collaboration in nuclear reactor production and deployment.
For NRIs invested in Indian energy stocks or considering investments in the nuclear energy supply chain, this opens a significant new avenue. Companies in the nuclear supply chain, heavy engineering, turbine manufacturing, and power infrastructure could see order book growth if these agreements move from framework to execution.
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Defense and Strategic Cooperation
The COMPACT framework explicitly covers military partnership and defense cooperation. Both countries are close to concluding a Reciprocal Defense Procurement Agreement (RDPA) to facilitate defense industry collaboration. The framework also references the Autonomous Systems Industry Alliance (ASIA) for Indo Pacific partnerships.
Indian defense companies, particularly those involved in co production and technology transfer arrangements with US firms, could see enhanced order pipelines. NRIs invested in defense sector stocks or ETFs should track these developments closely.
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How This Affects NRI Investments in Indian Markets
NRIs actively investing in Indian stock markets, mutual funds, ETFs, and sector specific opportunities should think about this trade agreement through multiple lenses.
Sectors Likely to Benefit
Textiles and Apparel: Indian textile exporters gain a competitive advantage with tariffs dropping to 18%. Listed companies with significant US export revenue in textiles, home furnishings, and apparel could see improved margins and order volumes. NRIs holding positions in textile focused mutual funds or individual textile stocks should monitor quarterly results for signs of increased US orders. However, the 18% tariff rate still represents a headwind compared to pre tariff conditions.
Leather and Footwear: Similar tariff relief applies here. Companies with established US distribution channels stand to gain the most.
Chemicals and Specialty Chemicals: Organic chemicals are explicitly covered under the tariff reduction. Indian specialty chemical companies that export to the US market could see improved competitiveness.
IT and Technology Services: The commitment to reduce barriers to high technology commerce, address export controls, and enhance technology transfer creates a favorable environment for Indian IT companies expanding their US operations. The elimination of restrictive import licensing for ICT goods also benefits companies in the hardware and telecom equipment space. However, the agreement does not explicitly address H1B visa provisions or changes to skilled worker quotas, though the services and technology pillars of the COMPACT could indirectly support visa flows for tech professionals.
Medical Devices and Healthcare: India's commitment to address barriers to US medical device trade could reshape the competitive landscape. NRIs should watch both Indian medical device manufacturers (who may face increased competition) and Indian healthcare providers (who may benefit from access to more affordable US medical technology).
Nuclear Energy and Power: The nuclear cooperation framework benefits companies in the Indian power sector, engineering and construction firms that could participate in reactor building, and component manufacturers in the nuclear supply chain. NRIs interested in the energy transition theme should track developments here closely.
Defense and Aerospace: The COMPACT framework explicitly covers military partnership and the emerging RDPA. Indian defense companies could see enhanced order pipelines.
Logistics and Trade Intermediaries: The $500 billion Indian purchase intent for US products over five years creates massive opportunities for logistics companies, port operators, and trade facilitation businesses.
Energy and Oil & Gas: India signaling intent to purchase US energy (LNG, crude, coal) does not directly hurt Indian energy companies. Companies involved in LNG import infrastructure, regasification terminals, and city gas distribution could benefit from increased volumes.
Sectors That May Face Headwinds
Agriculture and Food Processing: Indian agricultural producers and food processors may face increased competition from US imports as India lowers duties on American farm products. Companies focused purely on the domestic market in categories like tree nuts, processed fruits, soybean oil, and animal feed could see margin pressure. India successfully kept pulses (lentils, chickpeas) and the broader "agricultural" purchase commitment out of the revised framework, protecting domestic agricultural companies.
Wine and Spirits: Indian alcoholic beverage companies may face stiffer competition from US wine and spirits entering at lower duty rates.
Pharmaceuticals: India maintains very high basic customs duties exceeding 20% on drug formulations, including life-saving drugs and finished medicines, which remain a point of contention in negotiations. This suggests the pharmaceutical sector may face continued pressure in future BTA rounds.
Investment Vehicles to Consider
NRIs can access these opportunities through:
- Direct equity in listed Indian companies with significant US export exposure (through NRE/NRO demat accounts on a repatriable or non repatriable basis)
- Sector specific mutual funds focused on manufacturing, exports, or specific industries like textiles, chemicals, or IT
- Broad market ETFs that capture the overall economic uplift from enhanced trade
- InvITs focused on industrial and logistics infrastructure that supports increased trade volumes
- REITs in industrial and warehousing segments that benefit from expanded manufacturing and export activity
Implementation Timeline: What NRIs Should Plan For
India's Commerce Secretary Rajesh Agrawal confirmed that the formal legal trade agreement is expected to be signed by mid March 2026. He noted that unlike US executive tariffs, India's tariff reductions require a statutory framework, meaning India will begin reducing tariffs on select American imports only after the formal agreement is in place.
As of December 2025, the US had imposed 50% tariffs on Indian goods, and BTA negotiations were ongoing to address this and find mutually beneficial terms. The interim agreement framework announced in February 2026 represents progress toward resolving these tariffs.
This gives NRIs a clear planning window:
1. Now through mid 2025: Monitor the Terms of Reference and sector specific commitments emerging from BTA negotiations 2. Fall 2025: Watch for the first tranche of the BTA to be negotiated as committed in the February 2025 Joint Statement 3. Early 2026: Track the interim agreement framework and legal drafting process 4. Mid March 2026 onward: Expect India to begin implementing tariff reductions
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What the BTA Will Cover: Multi Sector Scope
The BTA is not a single chapter agreement. Both governments describe it as a multi sector deal spanning:
- Goods trade: tariffs, rules of origin, customs procedures
- Services: IT, consulting, financial services, and professional mobility
- Investment provisions for reciprocal market access and potential enhancements to Double Taxation Avoidance Agreement (DTAA) provisions
- Digital trade rules covering data flows, data localization, and e commerce facilitation
- Energy and nuclear cooperation including civil nuclear reactors, oil, gas, and clean energy
- Supply chain resilience and export controls
- Defense and autonomous systems: procurement rules, technology partnerships
- Intellectual property: patent and trademark protections
- Economic security alignment including coordinated supply chain cooperation and joint action against non market policies of third countries
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Practical Steps for NRI Business Owners and Entrepreneurs
If You Export from India to the US
The tariff drop to 18% dramatically improves your competitive position compared to the 50% tariffs imposed during negotiations, though this still represents a tariff burden. Review your pricing strategy, explore expanding your US customer base, and ensure your products meet the rules of origin requirements that will be established under the agreement. Monitor which sectors remain exempt (smartphones, medicines, petroleum products, certain agricultural items) to understand your product's eligibility.
If You Import US Products into India
India's commitment to scrap or lower duties on American industrial and agricultural products means your landed costs will decrease. Plan your procurement and inventory strategies around the mid March 2026 implementation timeline. However, note that India maintains high basic customs duties on certain categories like drug formulations, which may limit tariff relief in those sectors.
If You Work in Technology or ICT
The elimination of restrictive import licensing for US ICT goods and the commitment to address export controls creates new opportunities. Ensure you maintain compliance with both US and Indian export control regulations, especially when dealing in sensitive technologies. The agreement does not explicitly address H1B visa provisions, so monitor the services chapter as it develops.
If You Are a Trade Intermediary
The $500 billion Indian purchase intent for US energy, aircraft, precious metals, technology products, and coking coal over five years represents a massive pipeline. Position your business to facilitate these flows. Note that this is an aspirational commitment rather than a binding obligation.
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Tax and Compliance Considerations for NRIs
While the trade agreement itself focuses on tariffs and market access rather than income tax, NRIs should keep several compliance points in mind:
- Transfer pricing: If you operate businesses in both India and the US, the changing tariff landscape may affect your transfer pricing arrangements. Review these with your tax advisor.
- Customs duty planning: Work with a customs broker to understand exactly which tariff lines are covered and when reductions take effect. Note that certain sectors remain exempt from tariff reductions.
- Export control compliance: The Joint Statement emphasizes maintaining technology security standards even while reducing barriers. NRIs dealing in dual use technologies must ensure full compliance with both US Export Administration Regulations (EAR) and Indian export control frameworks.
- FEMA compliance: NRIs making investments in Indian companies to capitalize on trade agreement opportunities must follow FEMA regulations. The Liberalised Remittance Scheme (LRS) currently allows resident Indians to remit up to $250,000 per financial year for overseas investments. NRIs sending money into India follow different FEMA rules.
- Double Taxation Avoidance Agreement (DTAA): The current India US DTAA governs your withholding tax rates on dividends and royalties (currently 15 to 20%). The BTA could introduce enhancements to these provisions, so keep your tax advisor in the loop.
- Capital Gains Tax: Profits from Indian stocks and mutual funds attract capital gains tax in India. Short term gains (equity held less than 12 months) face 15% tax, and long term gains above Rs 1 lakh face 10% tax. These rates apply regardless of any trade deal, but you can claim credit for taxes paid in India when filing your US return.
- NRE and NRO Account Rules: Regardless of trade agreements, your investments in India as an NRI remain governed by FEMA regulations and RBI guidelines. You must invest through NRE or NRO accounts, use Portfolio Investment Scheme (PIS) for direct equity, and follow sectoral caps for certain industries.
What NRIs Should Watch For Going Forward
1. Official announcements from the Ministry of Commerce and USTR about specific tariff changes, product wise details, and market access commitments 2. Sector specific impacts especially if you hold concentrated positions in IT, pharma, defense, textiles, or agriculture stocks 3. Rules of origin finalization which will determine whether your manufacturing operations qualify for preferential treatment 4. Currency movements since trade deals can strengthen or weaken the rupee against the dollar, affecting your remittance value 5. Mutual fund and ETF rebalancing as fund managers adjust portfolios based on sectors likely to benefit from improved trade terms 6. Any changes to the DTAA or tax treaty provisions that might accompany broader economic agreements 7. Services chapter details as they emerge, particularly regarding H1B visa implications and digital trade rules 8. Defense Procurement Agreement (RDPA) finalization which could create new opportunities in defense manufacturing 9. Implementation timeline for tariff reductions once the formal agreement is signed in mid March 2026
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Important Notes on the Interim Agreement
The February 2026 interim agreement represents a partial rollback of the 50% punitive duties imposed during negotiations rather than a return to pre tariff conditions. The agreement includes built in flexibility: if either country changes its agreed upon tariffs, the other country may modify its commitments accordingly.
The revised US factsheet (released one day after the initial announcement) clarified several points:
- India's purchase commitment changed from "committed" to "intends," making it aspirational rather than binding
- "Agricultural" was removed from the explicit product list for India's purchases
- India's commitment to remove digital services taxes was dropped entirely
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Bottom Line for NRIs
The India US trade agreement framework represents a significant development that will reshape tariff structures, market access, and investment opportunities between the two countries. For NRIs with business interests, investments, or professional ties spanning both economies, staying informed about the agreement's progress and implementation is essential. The formal signing expected by mid March 2026 will mark the beginning of actual tariff reductions and market access improvements, creating both opportunities and challenges across multiple sectors.
Monitor official government announcements, track sector specific impacts on your portfolio, and work with tax and compliance advisors to optimize your cross border business and investment strategies in light of these developments.