Why the India-U.S. trade deal remains elusive

This report is from this week’s CNBC’s “Inside India” newsletter which brings you timely, insightful news and market commentary on the emerging powerhouse. Subscribe here.

The big story

India-U.S. relationship looked set to reach new heights at the start of 2025.

Prime Minister Narendra Modi was among the earliest foreign leaders to meet the newly elected U.S. President Donald Trump in February, just hours after he signed a plan to introduce “reciprocal tariffs.”

The optics were powerful as the leaders of the world’s largest and oldest democracies shook hands, and vowed to double bilateral trade to $500 billion by 2030, with Modi stating, “Our teams will work on concluding very soon, a mutually beneficial trade agreement.”

Cut to December, and India is among the highest tariffed countries in the world — levies that dwarf even those on China, which had been in Trump’s crosshairs during his election campaign.

India and U.S. have “strong economic incentives” to reach an agreement, said Sonal Varma, Nomura’s chief economist, India and Asia ex-Japan. The U.S. needs reliable supply chain partners outside China, and India offers scale and capability while New Delhi needs market access to Washington to sustain its export-led growth ambitions, she said.

Yet, negotiations appear to have hit a wall. A U.S. trade delegation wrapped up another rounds of talks in New Delhi last week, with no breakthrough, though U.S. Ambassador to India Sergio Gor described a call between Modi and Trump as “great.”

“I think the biggest roadblock is political will,” said Mark Linscott, former assistant U.S. trade representative and senior advisor at U.S.-India Strategic Partnership Forum, adding that “tariffs and agriculture are always difficult.”

He suggests that one of the ways to get Trump on board would be with a “big gesture” such as an “offer to purchase U.S. fuel ethanol or sustainable aviation fuel.”

While the U.S. seeks to improve its trade balance with the world’s fastest growing major economy by increasing sales of energy and farm products, India has only partially agreed on the energy sourcing front and has been resisting access to the politically sensitive farm sector.

“There’s resistance in India to certain row crops and other meats and products,” U.S Trade Representative Jamieson Greer told the Senate earlier this month, adding “they’re [a] very difficult nut to crack.”