The India-US trade deal, announced by US President Donald Trump on Monday, will see Washington cut tariffs on Indian goods to 18% from 50%. In exchange, India has agreed to put zero tariff on US goods, lower trade barriers, halt purchases of Russian oil, and step up imports of oil and other goods from the US, and potentially Venezuela. India has confirmed the tariff reduction but has not commented publicly on the Russian oil aspect.
However, Russia said it hasn’t received any communication from New Delhi indicating that India plans to stop buying Russian oil.
Also Read: No word from India on halting oil imports: Russia
Trump said India had committed to buying more than $500 billion worth of US energy, technology, agricultural and other products. A government official told Reuters on Tuesday that India has agreed to increase purchases of petroleum, defence goods, electronics, pharmaceuticals, telecom equipment and aircraft from the US.
“Ceasing all Russian oil purchases and stepping up US/Venezuelan oil purchases will likely increase India’s oil import bill, given higher freight costs and sanctions on Russia (Russian oil typically trades $6-$10 per barrel lower than Brent); this could affect inflation and government oil subsidies, though we note that inflation remains well contained within the RBI’s 2%-6% tolerance band,” the Fitch company said.
Tariff relief in India-US trade deal lifts the growth outlook
CreditSights said the tariff reduction should meaningfully improve India’s macroeconomic outlook. The US accounts for about 18% of India’s total goods exports, and the sharp cut in duties should support exports growth and strengthen India’s competitive position. US tariffs on Indian goods are now slightly lower than those faced by regional peers.The agreement also removes an additional 25% punitive tariff earlier imposed by the US, effectively lowering the applied rate to 18% from 50%. That relief is expected to benefit Indian exporters across sectors and reduce policy uncertainty tied to India-US trade relations.
India’s growth outlook has been further supported by its recently concluded free trade agreement with the European Union, which will remove or cut tariffs on more than 90% of goods traded with the bloc. CreditSights said the combined impact of the US and EU deals could reduce geopolitical and policy uncertainty, support foreign direct investment inflows and ease pressure on the rupee.
The India-EU trade deal still needs approval from the European Parliament, EU member states and India before it can take effect. Fitch arm GeoQuant said, the approval looks likely, as both sides have strong economic and strategic reasons to deepen ties amid recent hostile US trade policy. However, the process is expected to take time and could face political resistance.
Russian oil exit for India, US trade deal raises cost concerns
The main concern lies in India’s pledge to cease Russian oil imports. CreditSights said Russian crude has typically traded at a discount of $6 to $10 per barrel to Brent, helping India manage its import bill in recent years.
Shifting purchases towards the US and Venezuela is likely to raise costs, partly due to higher freight expenses and the sanctions framework surrounding Russian oil. Venezuela is geographically much farther from India, with shipping distances roughly five times those from the Middle East and about twice those from Russia, adding to the landed cost of crude imports.
Higher oil import costs could feed into inflation and increase pressure on government oil subsidies. CreditSights said inflation remains well within the Reserve Bank of India’s tolerance band of 2% to 6%, but the oil shift introduces a new variable into the inflation outlook.
Moody’s had said that New Delhi may not immediately stop all crude oil purchases from Russia following the India–US trade deal, noting that a sudden shift could be disruptive to economic growth and may have inflationary implications for the country.
Venezuela may soften the blow
There is, however, a countervailing factor. SBI Research in a report said that India’s crude oil import bill could fall by up to $3 billion a year if the country shifts part of its sourcing from Russia to Venezuelan heavy crude.
According to the report, increasing purchases of Venezuelan crude could deliver cost benefits even after accounting for longer shipping distances and logistics. CreditSights said this could partially offset the loss of discounted Russian barrels, though execution risks remain.
Also Read: India could cut fuel import bill by $3 billion by switching to Venezuelan crude: SBI Report
Refiners may face margin pressure after India-US trade deal
CreditSights forecasts Indian downstream oil and gas companies to come under some pressure from higher input costs. Refiners such as Reliance Industries, Indian Oil Corp, Bharat Petroleum and Hindustan Petroleum could see margin compression if crude costs rise.
That said, the firms retain some flexibility in sourcing oil from other suppliers such as Iraq, Kuwait, Oman and Saudi Arabia at competitive prices, which could limit the damage.
Rural economy and sectoral impacts
The report also raised concerns about India’s commitment to import more agricultural products from the US. CreditSights said higher imports could impair the livelihoods of millions of rural households dependent on agriculture, potentially dragging on the rural economy and overall growth.
On the corporate side, reciprocal 18% tariffs are expected to have a limited negative impact on Indian dollar bond issuers and remain far less damaging than the earlier 50% rate. Indian auto components manufacturers are likely to benefit from the tariff cut, as the US is a key export market. The steel sector may also see incremental gains due to reduced pressure on auto component makers.
Also Read: India didn’t blink: Key strategy that swung the US trade deal
Indian auto exporters such as Tata Motors will continue to face a higher 25% global tariff on US auto imports. CreditSights does not expect any impact on Biocon Biologics, as generics and biosimilars remain exempt from US tariffs.
With bilateral relations improving, CreditSights said it is cautiously optimistic about some de-escalation in the Adani legal indictment case, though no timeline has been indicated.