India-US Trade Pact: Balancing Farm Protection with Tech Access

The recent interim trade agreement between India and the U.S. marks a key shift, using limited concessions in sensitive farm areas to open doors for high-growth technology and industrial sectors. While protecting domestic farm interests is crucial, the deal primarily aims to speed up India's access to advanced semiconductor chips and critical technologies needed for its digital infrastructure goals.

Securing Tech Gains for Digital Ambitions

A key immediate benefit is boosting India's technology capabilities. By securing access to advanced semiconductor chips, server components, and critical technologies, the pact fuels India's 'Digital India' initiative and its pursuit of high-performance computing. This comes as the global semiconductor market is expected to surpass $670 billion by 2026. Additionally, the deal removes U.S. Section 232 tariffs on certain Indian aircraft and parts. It also offers a preferential tariff rate for automotive components, providing welcome relief and improving competitiveness for Indian industrial exports.

Semiconductor Competition

India is focused on growing its semiconductor industry through the India Semiconductor Mission (ISM), now in its 2.0 phase. The ISM aims to make India a global hub, and this trade deal supports that by easing access to key technologies. However, India faces significant competition from established players like Taiwan, which leads in global foundry revenue. Many countries are also building their domestic chip manufacturing. The global semiconductor market is expected to grow, driven by AI and advanced computing, making it crucial for India to secure its supply chain.

Agriculture and Market Access Concerns

On agriculture, the deal creates an 'Exclusion Category' to protect key domestic products like rice, wheat, poultry, and dairy from tariff changes. India has also kept restrictions on genetically modified (GM) products. While India gained duty-free access for some exports like spices, tea, and coffee, there are worries about the effect of lower duties on certain U.S. imports. For example, allowing more U.S. soybean oil and Dried Distillers Grains with Solubles (DDGS) could pressure Indian soybean farmers and the poultry sector, which uses these as feed ingredients. India still held a $1.3 billion trade surplus in agricultural trade with the U.S. in 2024.

Trade Tariffs and Policy

The interim deal lowers the U.S. tariff rate on Indian goods to 18%, down from up to 50% during trade tensions in 2025. The U.S. had previously used Section 232 tariffs, citing national security, affecting sectors like steel and aluminum. This trade pact occurs as U.S. trade policy becomes more transactional, which some analysts believe creates geopolitical risks for India and others. India's overall bilateral trade with the U.S. was around $212 billion in 2024.

Looking Ahead

This interim deal is seen as a step toward a broader Bilateral Trade Agreement, aiming to create a more integrated digital economy and enhance India's role in global supply chains. Analysts point to strong growth in the global semiconductor industry, fueled by AI and high-performance computing, making India's focus on this sector strategic. The strategy's success will depend on India balancing its agricultural protections with its push for technological independence and managing the complexities of U.S. trade policy.