No India-US trade deal would have some negative impact: Malhotra

RBI Governor Sanjay Malhotra said on Wednesday that failure to finalise the India-US trade deal would have some negative impact on the economy, adding that the extent depends on the tariffs applied and it is premature to assess. He said recent trade agreements, some operationalised and others in the pipeline, along with diversified exports, would mitigate the effect. Finance Minister Nirmala Sitharaman recently said talks had "reached a plateau". The US trade deficit with India was estimated at $34 billion last year.

Written by AI from Business · not yet reviewed by an editor · Published 7 Oct 2026, 1:41 pm IST

Source

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#india-us trade#rbi#tariffs#trade deal#economy

Desk check · compared with the source

What the desk checked (5)

RBI Governor Sanjay Malhotra said the impact of no India-US trade deal depends on the extent of tariffs and it is premature to answer, though there would be some negative impact. — Directly quoted and attributed to Malhotra at the post-monetary policy press conference.
Finance Minister Nirmala Sitharaman said negotiations are ongoing but both sides have 'reached a plateau'. — Attributed quote, stated as made at the Munich Security Conference.
US trade deficit with India was an estimated $34 billion last year, down from $41 billion in 2024-25. — Figures appear in source, attributed to Sitharaman; described as estimates.
USTR has imposed an additional duty of 10-12.5% on more than 50 countries over alleged forced-labour-linked imports. — Stated in source without named attribution.
A February India-US arrangement with an 18% additional tariff was put on hold after the Supreme Court ruled reciprocal tariffs illegal. — Stated in source without attribution or case details; editor may seek confirmation.

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Analysts’ view opinion

AI Economic Analyst

The most telling part of the RBI governor's remarks is the combination: he concedes there will be a negative hit, but says it is premature to size it. That shifts the economic question away from whether a deal happens to what final tariff level lands, and on which sectors. His argument that other trade agreements and export diversification will cushion the blow is reasonable, but building new markets takes time and rarely absorbs a near-term shock in full.

Even if the macro hit is only "some", it is likely to be concentrated in labour-intensive export sectors rather than spread evenly across the economy.
The RBI raising its growth forecast to 7.1% while hiking the repo rate by 25 basis points suggests the central bank does not currently see trade uncertainty as severe enough to redirect monetary policy.
The story puts the US trade deficit with India at an estimated $34 billion, down from $41 billion in 2024-25; narrowing it via higher energy purchases gives India a bargaining chip, but who bears any switching cost is not established.
Agricultural market access is politically expensive for both sides, which is plausibly the economic reason behind talks having "reached a plateau".
With the February arrangement suspended after the Supreme Court ruling and additional duties now applying to more than 50 countries, the real cost to business is less the tariff level than the uncertainty around it.

What to watch — Watch the final tariff percentage and which sectors it covers, and whether the law permitting duties of up to 100% on Russian oil imports hardens or unblocks the negotiation.

The story offers no quantified estimate of the hit to growth, jobs or exports if no deal materialises — the governor himself called that premature.

Deep dive

Research brief · 8 facts · 7 dates · exam-ready

The brief

Context

India and the United States have been negotiating a bilateral trade agreement for months, with officials repeatedly signalling a conclusion was near. At the post-monetary policy press conference, RBI Governor Sanjay Malhotra said failure to finalise the deal would have "some negative impact" on the economy, though the scale depends on the tariffs eventually applied. His remarks follow Finance Minister Nirmala Sitharaman's statement at the Munich Security Conference that talks had "reached a plateau", and USTR Jaimeson Greer's assessment that no agreement was imminent. Sticking points include US demands for greater access for its agricultural products and India's new law permitting duties of up to 100% on Russian oil imports.

Key facts

RBI Governor Sanjay Malhotra said on Wednesday that no India-US trade deal would "obviously" have "some negative impact", but calling the extent is "premature".
Malhotra said recent trade agreements - some operationalised, others in the pipeline - plus diversified exports would mitigate the effect of additional tariffs.
Finance Minister Nirmala Sitharaman said at the Munich Security Conference that both sides had "reached a plateau beyond which giving or taking might be very, very difficult".
US trade deficit with India stood at an estimated $34 billion last year, down from $41 billion in 2024-25, and could fall further with higher Indian energy purchases from the US.
USTR Jaimeson Greer said after meeting Commerce Minister Piyush Goyal: "I don't think there's something imminent, but we truly have identified the universe of items that are sticking points."
The USTR has imposed an additional duty of 10-12.5% on more than 50 countries, citing alleged failure to prevent imports of goods made using forced labour.
In February, India and the US agreed on a bilateral trade agreement under which the Trump administration imposed an additional 18% tariff on Indian exports; it was put on hold after the Supreme Court ruled "reciprocal tariffs" illegal.
A recent law permitting duties of up to 100% on imports of Russian oil is seen as another hurdle in the negotiations.

Timeline

2024-25US trade deficit with India at $41 billion.
Last yearUS trade deficit with India estimated at $34 billion.
FebruaryIndia and the US agreed on a bilateral trade agreement; Trump administration imposed an additional 18% tariff on Indian exports, later put on hold after the Supreme Court ruled "reciprocal tariffs" illegal.
Recently (before Sitharaman's remarks)USTR Jaimeson Greer met Piyush Goyal and said no agreement was imminent, though sticking points had been identified.
Last weekPM Narendra Modi and US President Trump discussed bilateral trade, defence, energy and other matters over a phone call.
Days before Malhotra's remarksSitharaman said at the Munich Security Conference that talks had "reached a plateau".
WednesdayRBI Governor Malhotra, at the post-monetary policy press conference, said no deal would have some negative impact; RBI hiked repo rate by 25 bps and raised GDP growth forecast to 7.1%.

Who has a stake

Reserve Bank of India / Governor Sanjay Malhotra — Must factor tariff uncertainty into growth and inflation projections and monetary policy decisions.
Finance Ministry / Nirmala Sitharaman — Owns the macro-fiscal consequences of the deal and publicly frames the state of negotiations.
Commerce and Industry Ministry / Piyush Goyal — Lead negotiator managing sticking points, including US demands on agricultural market access.
USTR Jaimeson Greer / Trump administration — Seeks to narrow the US trade deficit with India and win greater access for US agricultural goods.
Indian exporters and industry — Face possible additional tariffs on some sectors; have been diversifying export markets as a hedge.
Indian farmers / agriculture sector — Directly exposed to US pressure for lower tariffs on American agricultural products.

Why it matters

The US is a major export market, and the shape of any tariff outcome will feed directly into India's growth, export earnings and the RBI's policy calculus. The central bank's message is that trade diversification and other agreements act as shock absorbers, but it concedes a negative impact if the deal collapses. With talks at a "plateau" and Russian oil duties and agriculture access unresolved, the uncertainty itself is now a cost for exporters planning investment.

UPSC angle

Prelims pointers

RBI Governor: Sanjay Malhotra; comments made at the post-monetary policy press conference.
RBI hiked the repo rate by 25 basis points and raised its GDP growth forecast to 7.1%.
US trade deficit with India: estimated $34 billion last year, versus $41 billion in 2024-25.
USTR (US Trade Representative) is headed by Jaimeson Greer; counterpart is Commerce Minister Piyush Goyal.
February deal involved an additional 18% US tariff on Indian exports; halted after a Supreme Court ruling that "reciprocal tariffs" were illegal.
USTR has levied an extra 10-12.5% duty on 50-plus countries over alleged forced-labour-linked imports.

Mains framing

The stalled India-US bilateral trade agreement illustrates how tariff policy has become an instrument of geopolitical bargaining rather than a purely commercial negotiation. The immediate causes of the deadlock are identifiable: US insistence on greater market access for its agricultural products, where India's negotiating space is constrained by livelihood concerns; the recent Indian law permitting duties of up to 100% on Russian oil imports; and the legal uncertainty created by the Supreme Court ruling that struck down "reciprocal tariffs", which had earlier underpinned an 18% additional duty agreed in February. Overlaying this are horizontal US measures - an extra 10-12.5% duty on more than 50 countries on forced-labour grounds and an examination of "structural overcapacity" that India denies. The implications run through exports, the current account and monetary policy, which is why the RBI Governor flagged a "negative impact" while declining to quantify it. The mitigating strategy articulated by the central bank is instructive: a widening network of trade agreements, some already operationalised and others in the pipeline, alongside industry-led export diversification, plus the narrowing of the bilateral deficit through higher energy purchases from the US. The way forward lies in locking in clarity on the quantum of additional tariffs before signing, protecting sensitive agricultural lines, and accelerating market diversification so that no single partner can dictate India's trade outcomes.

Key terms

Bilateral Trade Agreement (BTA): A negotiated pact between two countries on tariffs and market access; the India-US version remains unfinalised.
Reciprocal tariffs: US duties mirroring partner-country tariffs; the Supreme Court ruled them illegal, putting the February arrangement on hold.
USTR: Office of the US Trade Representative, the US agency that negotiates trade deals and imposes trade duties; headed by Jaimeson Greer.
Trade deficit: Excess of imports over exports for a country; the US deficit with India was an estimated $34 billion last year.
Structural overcapacity: Alleged excess production capacity distorting global markets; the US is examining this for countries including India, which denies the charge.
Basis point (bps): One-hundredth of a percentage point; the RBI's repo rate hike was 25 bps.

Practice questions

Examine how uncertainty over the India-US bilateral trade agreement affects India's export performance and monetary policy choices.
"Trade diversification is India's best insurance against unilateral tariff action." Critically evaluate in the light of recent developments.
Discuss the sticking points in the India-US trade negotiations, with reference to agricultural market access and duties on Russian oil imports.

Grounded only in the source report — figures and dates are the source's, not inferred.

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