India-US BTA May Cut India’s Trade Surplus: CRISIL Predicts Surge in US Imports

India-US BTA May Cut India’s Trade Surplus: CRISIL Predicts Surge in US Imports

India's economic relationship with the United States has witnessed significant transformation over the past decade. The U.S. remains India's largest export market, with sectors such as pharmaceuticals, engineering goods, textiles, software services, and gems and jewellery forming the backbone of this trade partnership. However, according to a recent report by CRISIL, a Bilateral Trade Agreement (BTA) between India and the United States, currently under discussion, may alter the dynamics, leading to a possible reduction in India’s goods trade surplus with the U.S.

The BTA, which both nations are pushing to finalise by late 2025, is expected to enhance trade flows, encourage investments, and align tariff structures. But experts warn that it could also trigger higher imports from the U.S., thus shrinking India’s existing goods trade surplus, which has been a significant marker of India’s export strength in recent years.

Understanding the Current Trade Surplus

As of the fiscal year 2024–25, India enjoys a substantial goods trade surplus with the United States, amounting to approximately $41 billion. This surplus means that India exports significantly more to the U.S. than it imports, creating a favourable trade balance that supports foreign exchange reserves, generates employment, and boosts manufacturing sectors in the country.

India’s top exports to the U.S. include:

• Pharmaceuticals and healthcare products
• Gems, jewellery, and precious metals
• Textiles and apparel
• Electronics and smartphones
• Machinery and engineering goods
• Software and IT services

While these sectors have flourished due to high demand in the American market and competitive pricing, a significant portion of these exports already enjoy duty-free or low-tariff access under existing frameworks, especially in pharmaceuticals, IT services, and gems.

The Bilateral Trade Agreement (BTA): An Overview

The BTA under negotiation aims to deepen the economic partnership between the two nations. While comprehensive Free Trade Agreements (FTAs) typically cover goods, services, investments, intellectual property, and dispute resolution mechanisms, this BTA is expected to focus initially on tariff rationalisation and market access improvements for both parties.

Reports suggest that both governments aim to conclude the first phase of the BTA by September or October 2025. Negotiations are said to be progressing on multiple fronts, including:

• Tariff reductions on selected goods
• Market access for specific sectors
• Mechanisms to prevent sudden re-imposition of tariffs
• Safeguards for sensitive industries

While the agreement promises to simplify trade and encourage investment, it also opens avenues for increased competition, particularly for Indian domestic industries that have, until now, been shielded by higher tariff structures.

Why India’s Trade Surplus May Shrink

CRISIL’s report highlights that India maintains significantly higher average tariffs compared to the United States. This tariff asymmetry has historically protected Indian markets from cheaper foreign imports, especially in sensitive sectors like agriculture, energy, and defence equipment.

The BTA is expected to reduce or eliminate tariffs on select categories of U.S. goods, making them more competitive in the Indian market. Key sectors expected to see increased imports from the U.S. include:

• Energy Sector: Crude oil, liquefied natural gas (LNG), and renewable energy technologies
• Agricultural Products: Pulses, nuts, dairy, and certain grains
• Defence and Aerospace Equipment: Aircraft components, defence systems, and advanced machinery
• Medical Equipment and High-end Technologies

As a result, India’s import bill from the U.S. is likely to increase, which may lead to a reduction in the goods trade surplus, especially if Indian exports do not see a corresponding rise.

Limited Room for Export Growth

Another critical point raised in the CRISIL analysis is that India may struggle to significantly expand its exports to the U.S. under the BTA in the immediate future. This is because many of India’s high-performing export sectors already benefit from low or zero tariffs in the American market.

For example:

• Pharmaceuticals: Generics and active pharmaceutical ingredients (APIs) from India already enjoy favourable market access.
• Textiles and Apparel: Although there are tariff barriers, some duty-free quotas exist, limiting further expansion possibilities unless new concessions are negotiated.
• Gems and Jewellery: Already a significant export with preferential treatment in many cases.

This suggests that while India’s imports from the U.S. may rise sharply due to tariff reductions, exports may not experience a proportional boost, tilting the trade balance in favour of the United States.

Negotiating for India’s Interests

Indian negotiators are reportedly working to safeguard the interests of domestic industries that could be vulnerable to increased competition. Key concerns include:

• Protection for labour-intensive sectors such as textiles, leather, and footwear
• Avoiding excessive dependence on U.S. agricultural imports that may hurt Indian farmers
• Mechanisms to prevent abrupt tariff increases by either party after the BTA is signed
• Exploring avenues for expanding services trade, where India holds a competitive advantage, such as IT, consulting, and engineering services

India is also advocating for:

• Assured market access for new product categories
• Technology transfers in critical sectors like defence, aerospace, and renewable energy
• Collaboration in research and development, especially in emerging technologies like artificial intelligence, semiconductors, and green energy

If these provisions are successfully integrated into the BTA, India may mitigate some of the adverse impacts on its trade surplus.

Global Context and Strategic Importance

The BTA negotiations come at a time when global trade dynamics are evolving rapidly. The U.S. is pursuing "friend-shoring" strategies to reduce dependency on countries like China and strengthen trade ties with trusted partners such as India.

India, for its part, seeks to position itself as a global manufacturing hub under initiatives like “Make in India” and “Atmanirbhar Bharat” (self-reliant India). Closer economic engagement with the U.S. aligns with these goals, offering opportunities for:

• Greater foreign direct investment (FDI)
• Technology partnerships in high-growth sectors
• Increased collaboration in supply chain resilience

However, the potential reduction in the trade surplus underscores the need for cautious, well-balanced negotiations.

Timeline and Future Outlook

According to government sources and media reports:

• The first phase of the BTA is expected to be concluded by September–October 2025.
• An interim agreement focusing on select tariff reductions could materialise earlier, possibly by July, as both countries seek to resolve pending trade irritants.
• The long-term goal is to double bilateral trade to $500 billion by 2030, from the current $200–220 billion range.

While a reduced goods trade surplus may seem like a setback for India, broader economic benefits such as enhanced investment flows, access to cutting-edge technologies, and new market opportunities could compensate over time.

The Path Ahead: Balancing Gains and Challenges

For India, the BTA presents both opportunities and risks. Policymakers must:

✅ Safeguard vulnerable sectors like agriculture, dairy, and small-scale industries

✅ Secure meaningful concessions in services, where India excels

✅ Insist on stability clauses to prevent future tariff escalations

✅ Explore joint ventures and technology partnerships in high-growth industries

✅ Promote export diversification to offset increased imports

Meanwhile, businesses and exporters should prepare for:

• More competition in the domestic market from U.S. products
• New avenues to tap into American markets if additional sectors gain duty-free access
• Collaborations with U.S. firms in sectors like defence, energy, and technology

By adopting a strategic, forward-looking approach, India can navigate the challenges of the BTA while maximising its long-term economic interests.

Conclusion

CRISIL’s warning about the potential reduction in India’s goods trade surplus with the United States reflects a nuanced understanding of global trade negotiations. While the BTA may trigger higher imports from the U.S., its broader success will depend on how effectively India secures new export opportunities, protects sensitive sectors, and leverages the agreement to foster innovation, investment, and economic growth.

As the world’s largest democracy and a rising economic power, India’s engagement with the U.S. through the BTA could shape the next decade of trade and investment patterns, provided both sides strike a fair and mutually beneficial deal.