The breakthrough outcome of the trade deal announced by Washington and New Delhi is a dramatic drop in the levy imposed on India.
A reciprocal tariff of 50% on goods and services entering the US - among the highest rates imposed on any country - was slapped on India by the Trump administration last August as a punishment for buying oil from Russia.
That rate has been slashed to 18% with the caveat that New Delhi ceases its dependence on oil supplied by Moscow and substitutes future supplies to Washington.
In the absence of a formal agreement or a joint statement between the signatories to the deal, Trump’s podium declarations await substantiation from Indian Prime Minister Narendra Modi, who has remained largely taciturn on the matter.
But in the runup to its full implementation, the US-India free trade agreement, predicated upon the Trump administration’s expectation that India will eschew oil imports from Russia, leaves tight wiggle space for Modi.
A show of good faith by scaling down Russian oil imports and increasing oil purchases from the US, coupled with closing a natural gas deal recently, have helped New Delhi allay US concerns and push the trade deal across the finish line.
Trump's 25% penalty tariff hike on Indian imports to the US stands officially removed as a result of the US-India trade deal.
But the question that arises is whether that penalty clause will be back on the books if India fails to meet the caveat imposed by Trump.
But Trump’s hawkish stance on oil purchases from Russia, which he equates with swelling Moscow’s war chest and prolonging the war in Ukraine, seemingly blinds him to the logistical challenges involved in closing the oil tap overnight.
Indian oil companies are bound by ongoing contracts with Russia and await Government of India guidelines before halting imports. These companies are having to turn to the Middle East, Africa and South America to source their future oil supplies, as per trade data.
The aftermath of the US-India trade pact will be watched closely for signs of subtle shifts in the diplomatic interface between the two sides, as well as its geopolitical consequences.
The leadup to the deal was marred by acrimony. In May, Trump claimed credit for brokering a truce between India and Pakistan following a four-day skirmish between the South Asian neighbours. Modi’s refusal to grant the US president any diplomatic capital over the incident left the Trump administration chafing.
Modi followed this up in June by declining an invitation to visit the White House where Trump was hosting Pakistan’s army chief. In October, Modi opted out of a summit attended by Trump in Malaysia.
These diplomatic rebuffs could be construed as New Delhi signalling its foreign policy autonomy and adherence to its cornerstone principle of “nonalignment”.
In recent months, US-India relations appear to have been on the mend following high-level diplomatic engagement on both sides.
But the rapprochement with Washington sits uneasily with New Delhi’s reception accorded to Russian President Vladimir Putin in December.
The US-India FTA shifts the dynamic of the Cold War-era equation between New Delhi and Moscow by subjecting it to Trump's caveat on Russian oil imports.
This development forestalls impending visits to India by Canada’s Mark Carney and Brazil’s Luiz Inacio Lula, who are rallying with New Delhi as part of a thrust towards forging an axis of “middle powers” guided by a vision of a rules-based international order orbiting beyond the gravitational pull of the major powers.
Venu Menon is a senior journalist based in Wellington. He was Consulting Editor of The Hindu in India prior to moving to New Zealand.