Defence equipment, oil, cars: Where India could lower tariffs to reach deal with US

India and the United States are moving closer to finalizing a pivotal trade agreement that could redefine economic ties between the two nations. As trade negotiations progress, one of the most critical and sensitive issues on the table is tariff reduction. India, a country with a vast and growing market, is carefully weighing the possibility of lowering customs duties on several key imports from the US. Among the most significant sectors under consideration are defence equipment, crude oil, and automobiles — all of which play vital roles in India’s economic and strategic landscape.

Defence Equipment: Enhancing Strategic Ties through Tariff Reforms

India and the US have witnessed a remarkable evolution in their defence relationship over the past decade. From joint military exercises to technology sharing and defence manufacturing partnerships, the two countries have steadily deepened their strategic cooperation. The import of defence equipment from the US forms an essential part of India’s ongoing military modernization efforts. Aircraft, advanced surveillance systems, missiles, and other sophisticated defence gear largely come from US suppliers.

However, high tariffs and customs duties on defence imports have often been cited as hurdles that increase procurement costs. India currently imposes significant import duties on many defence-related items, which raises the overall price of the equipment. In negotiations, India is exploring ways to reduce tariffs on select defence products, which would not only lower costs but also encourage further collaboration in co-development and joint manufacturing under initiatives like “Make in India.”

Reducing tariffs on defence equipment could strengthen India’s defense capabilities by making cutting-edge technology more accessible and affordable. It could also pave the way for deeper integration of supply chains between the two countries, fostering innovation and greater self-reliance in India’s defence sector.

Crude Oil: Strategic Energy Security and Potential Tariff Easing

Energy security is a top priority for India as it seeks to fuel its fast-growing economy and meet rising domestic demand. The United States has recently emerged as a significant exporter of crude oil to India, especially in the form of shale oil and liquefied natural gas (LNG). The increasing supply of US energy resources to India complements New Delhi’s efforts to diversify its energy sources and reduce dependence on traditional suppliers.

Currently, India levies customs duties on crude oil imports, which affect the final cost of energy. Tariff reductions on US crude oil and LNG could help lower India’s energy import bills, making fuel more affordable for industries and consumers alike. It would also create a more predictable and stable energy trading environment between the two countries.

From the US perspective, increasing energy exports to India is a strategic win as it opens up a growing market for American producers. From India’s side, easier access to US crude and gas supports its agenda for energy diversification, cleaner fuel options, and sustainable development goals.

Automobiles: Opening the Doors to Innovation and Consumer Choice

The automotive industry is another focal point of India-US trade talks, especially given the potential for India to become a hub for electric vehicle (EV) manufacturing and exports. India currently applies high tariffs on imported vehicles, particularly luxury cars and EVs from the US, which limits the availability of certain models and technologies in the Indian market.

By lowering tariffs on US cars, India could boost competition in its automotive market, giving Indian consumers access to a wider variety of vehicles, including advanced EV models that align with global trends toward sustainable mobility. It would also stimulate technology transfer and joint ventures in electric and hybrid vehicle manufacturing, aligning with India’s ambitious goals for cleaner transportation.

Moreover, tariff cuts could attract more US investment into India’s automobile sector, supporting the government’s “Make in India” initiative and job creation efforts. For American carmakers, easier access to India’s vast consumer base represents a lucrative growth opportunity.

Challenges and Considerations

While lowering tariffs on defence equipment, oil, and automobiles holds clear benefits, India faces complex challenges in balancing domestic interests and international commitments. High tariffs on certain imports have traditionally been used to protect local industries and encourage domestic manufacturing. Reducing these tariffs could face resistance from Indian manufacturers worried about increased competition from foreign companies.

Additionally, any trade deal must address non-tariff barriers, regulatory alignments, and intellectual property protections to ensure that tariff reductions translate into real business opportunities. India’s sensitive sectors, such as agriculture and pharmaceuticals, also remain critical points of negotiation that could influence the overall agreement.

The Broader Context of India-US Trade Relations

The prospect of tariff reduction on these key sectors comes at a time when both India and the US are eager to strengthen their economic and strategic partnership amidst shifting global trade dynamics. The US views India as a vital partner in the Indo-Pacific region, and trade is a significant component of this relationship.

India, meanwhile, is keen to access US markets and attract investment while safeguarding its economic sovereignty and growth ambitions. The ongoing negotiations aim to strike a balance that benefits both economies by promoting greater market access, reducing trade imbalances, and enhancing bilateral cooperation in critical areas such as defence, energy, and technology.

What the Future Holds

If India agrees to lower tariffs on defence equipment, crude oil, and automobiles, it could signal a major breakthrough in the trade talks, unlocking new levels of economic engagement between the two nations. For India, such tariff reductions would provide access to advanced technologies, competitive energy supplies, and innovative automobile models, supporting its modernization and development goals.

For the US, enhanced market access in India represents a huge opportunity for American businesses and exporters, while also strengthening strategic ties with a key global partner.

As negotiations continue, both sides will likely work through complex technical and political issues. However, the mutual benefits of tariff reduction in these sectors offer a strong incentive to reach an agreement that could redefine India-US trade relations for years to come.