Why the India–US FTA matters now
On 2nd February 2026, India and the United States announced a significant trade understanding that has been widely described as a reset in bilateral economic relations. One of the most commercially important outcomes of this announcement is the sharp reduction in US tariffs on certain Indian goods, with rates reportedly dropping from around 50 percent to approximately 18 percent.
This change is not incremental. A tariff correction of this scale directly affects landed cost, pricing flexibility, and profit margins for exporters. For many Indian businesses that were previously priced out of the US market, the revised tariff level suddenly makes commercial entry viable.
While the detailed treaty text has not yet been made public, the announcement itself has already influenced business sentiment. Markets responded positively, exporters began reassessing US demand, and companies started exploring supply chain adjustments to take advantage of the expected changes.
For Indian and US companies alike, this is more than a policy statement. It is a signal that trade, investment, and long-term commercial cooperation between the two countries are expected to deepen. However, the ability to convert this momentum into sustainable business outcomes will depend on how well companies understand and prepare for the legal, regulatory, and operational framework that follows.
What we know so far about the India–US FTA
Based on official statements and reliable reporting, the United States has agreed to significantly reduce tariffs on select Indian goods, bringing them down from levels as high as 50 percent to around 18 percent. This immediately alters long-standing trade economics and reshapes competitive positioning for Indian exporters in the US market.
In parallel, India has committed to expanding access for certain US products and increasing imports in sectors such as energy, defence, and industrial goods. These commitments are expected to be backed by structured procurement arrangements and long-term commercial relationships rather than one-off transactions.
However, the announcement currently lacks a published legal framework. Key elements such as product-level tariff schedules, rules of origin, safeguard measures, compliance procedures, and dispute resolution mechanisms are still awaited. Implementation is likely to be phased, with sector-specific notifications issued over time.
This gap between political announcement and formal legal notification creates both uncertainty and opportunity. Businesses that prepare early can move faster once the framework is finalised, while those that wait may struggle to adapt under tight timelines.
Business Sectors Likely to Benefit the Most
Manufacturing and engineering are expected to be among the biggest beneficiaries of the tariff reduction. A move from 50 percent to 18 percent significantly improves export viability for sectors such as auto components, textiles, industrial machinery, consumer durables, and precision engineering. For many of these industries, price sensitivity in the US market is high, making tariff relief a decisive factor.
Pharmaceuticals and medical devices also present strong potential. While regulatory approvals remain critical, reduced tariffs improve cost competitiveness and support larger volume exports. Indian manufacturers with existing compliance frameworks and international certifications will be particularly well positioned.
The IT and services sector may not benefit directly from tariff changes, but it is likely to see indirect gains. Increased trade activity typically leads to higher demand for technology support, digital infrastructure, cross-border contracting, and operational services tied to manufacturing and logistics.
Agriculture and food exports may see selective openings. However, access will remain closely linked to sanitary, phytosanitary, and quality standards. Exporters in this space will need to align closely with US regulatory expectations.
Defence, aerospace, and energy sectors stand out as strategic priorities. India’s commitment to increase purchases from the US is expected to encourage joint ventures, co-development projects, technology transfers, and long-term supply arrangements rather than simple import transactions.
Key Legal and Regulatory Considerations for Businesses
Despite the headline tariff reduction, businesses should not assume automatic eligibility for the 18 percent rate. Preferential tariffs will apply only if products meet detailed rules of origin. Companies with complex or multi-country supply chains must carefully evaluate where value is added and whether their goods genuinely qualify.
Regulatory compliance will continue to be a decisive factor for market access. Sectors such as pharmaceuticals, food, electronics, and defence remain subject to strict approval processes. Reduced tariffs do not override regulatory requirements, and non-compliance can delay or block entry entirely.
Customs classification and valuation take on heightened importance when tariff rates change so significantly. Incorrect classification can eliminate the benefit of tariff reduction and lead to penalties, audits, or disputes with customs authorities.
Intellectual property considerations also become more prominent as businesses expand into new markets and share proprietary technology or processes. Without proper protection and contractual safeguards, commercial advantage can quickly erode.
Export controls, sanctions compliance, and geopolitical considerations must be factored into trade planning, particularly for high-value or sensitive goods. Businesses must ensure that expanded trade activity aligns with broader international compliance obligations.
Turning Tariff Reduction into Real Business Outcomes
To fully benefit from the reduction from 50 percent to 18 percent, businesses will need to reassess their supply chains, cost structures, and pricing strategies. The revised tariff rate may justify relocating certain manufacturing steps, changing sourcing arrangements, or renegotiating supplier contracts.
Commercial agreements will need to clearly allocate responsibility for customs duties, regulatory approvals, delays, and compliance failures. Pricing models may also need adjustment to reflect new competitive dynamics in the US market.
Businesses expanding cross-border operations should evaluate their corporate and tax structures to ensure scalability. Increased volumes can expose weaknesses in transfer pricing, indirect tax treatment, and inter-company arrangements if not addressed early.
A Practical Readiness Approach for Businesses
Businesses planning to leverage the revised tariff regime should begin with a structured readiness assessment. This involves mapping supply chains against origin requirements, reviewing product classifications, reassessing pricing based on the 18 percent tariff rate, and strengthening internal compliance systems.
Operational readiness is just as important as commercial intent. Documentation, internal controls, and compliance processes must be aligned before shipments begin, not after issues arise.
Early preparation allows businesses to respond quickly once formal notifications are issued. Those who delay may find themselves unable to claim benefits despite favourable headline rates.
How to Capture Lasting Value
The reduction of tariffs from 50 percent to 18 percent under the India–US FTA has the potential to reshape trade flows, investment decisions, and long-term commercial strategies across multiple sectors. However, headline numbers alone do not guarantee success.
Businesses that approach this opportunity with careful planning, regulatory awareness, and well-structured commercial arrangements will be best positioned to capture lasting value from the evolving India–US trade relationship.
