As India nears US trade deal, rural economy braces for impact

The United States has recently finalised a trade agreement with Vietnam, and now the spotlight is firmly on a potential deal with India. An Indian trade delegation is currently in Washington, and officials are signalling that a breakthrough could happen at any moment. Finance minister Nirmala Sitharaman, echoing US President Donald Trump's characteristic style, has even declared that a “big, beautiful deal” is on the horizon.

However, even before such a deal materialises, President Trump has issued a stark warning: countries like India and China, which continue to buy oil from Russia, could face punitive tariffs of up to 500 per cent. While this threat is largely rooted in the ongoing geopolitical tensions between the US and Russia, it also underscores a hard reality — India should not expect any leniency from Washington, even as trade negotiations progress.

Several analysts have pointed to four key sticking points that continue to delay the agreement — often referred to as the "four red lines" in recent discussions. These contentious issues involve corn, soybean, ethanol, and dairy products.

The US, which has surplus production of corn and soybean, is pushing India to completely eliminate tariffs on their import. According to a recently published working paper by NITI Aayog, this is a major demand from the American side.

But the problem isn’t simply about reducing import duties. The core issue lies in the fact that most of the corn and soybean grown in the US is genetically modified (GM). India, with the exception of cotton and mustard, has not approved any GM food crops for domestic use or import. As a result, it currently does not allow the import of GM agricultural commodities, with one exception — GM soybean oil, which is already being brought in.

If India agrees to open the door to GM corn and soybean, it would essentially give American farmers the benefit of biotechnology while continuing to deny Indian farmers the same advantage. This asymmetry is difficult for Indian policymakers and farmer lobbies to accept.

The ethanol issue presents another challenge. India has developed a domestic supply chain for ethanol-blended petrol, relying heavily on sugar mills to meet demand. If ethanol imports from the US are liberalised, it could severely disrupt this ecosystem. While the powerful US ethanol lobby continues to push for greater access, India’s influential sugar industry is expected to resist any move that threatens its viability.

Perhaps the most complex and sensitive issue in the ongoing trade negotiations is that of dairy products. While the United States is not among the world’s leading exporters of milk and dairy — unlike countries such as New Zealand or Australia — its processed dairy industry, especially cheese, sees India as a promising and untapped market.

However, American dairy products face a unique kind of resistance in India, rooted in deep cultural sensitivities. In the US, dairy cows are often fed with supplements derived from animal fat, protein and sometimes even blood to boost milk yield and quality.

In India, milk is widely regarded as a vegetarian product, and this practice raises serious religious and ethical concerns. The fear is that allowing American dairy into the Indian market could offend cultural and religious sentiments. Given the recent assertiveness of the US administration, it's unclear whether Washington is willing to acknowledge or accommodate such concerns.

If corn, soybean, ethanol, and dairy are indeed the main sticking points, one could conclude that agriculture is the last battleground in the negotiations. This also suggests that talks over industrial and technological goods — such as Harley-Davidson motorcycles, which were previously a major point of contention — may have already been resolved, or at least largely defused.

The Indian government’s recent track record on agricultural tariffs, however, does not inspire much confidence among domestic farmers. In 2023, under pressure from the United States, the government slashed import duties on apples from 70 to 50 per cent. The result was dramatic: imports of Washington apples surged nearly 20 times, a blow to Indian apple growers, particularly in Himachal Pradesh and Kashmir.

Similarly, India also lowered tariffs on cranberries and blueberries — items once considered luxury imports. Today, these berries are readily available even in small neighbourhood stores.

These developments raise a key question: as the government navigates trade diplomacy, is it protecting the long-term interests of Indian farmers and producers, or yielding too easily to external pressure in the name of global cooperation?

If India further lowers import duties owing to pressure from the United States, it could lead to significant challenges. Such a move would not only disrupt the Indian agriculture sector but could also impact the broader rural economy.

Take walnuts as an example: India already imports a substantial quantity of walnuts from the US. If import duties are sharply reduced to satisfy American producers, the influx of cheaper imported walnuts would threaten livelihoods of Indian walnut growers, especially since walnuts in India are primarily cultivated in hilly regions where alternative crops are limited.

The greatest risk is that inexpensive, mass-produced agricultural products from the US could overwhelm Indian markets. Unlike the US, where agriculture benefits from large-scale industrial production, most Indian farmers work on small land-holdings and cannot achieve similar economies of scale. If cheaper American products flood Indian markets, it would pose a new challenge to an agricultural system already facing various difficulties. Numerous studies indicate that farming in India is increasingly becoming unprofitable, and such a development could further worsen the situation for Indian farmers.