India-US trade deal: What’s holding back the agreement and risks of further delays? Explained

India-US trade deal: The Indian stock market is navigating rough terrain, in contrast to Western markets, particularly the US, which is hitting record highs as progress on trade deals with major partners has eased earlier investor concerns about rising inflation and its potential spillover effects on the world’s largest economy.

As the US signed trade deals with major economies, with the latest being Japan and the Philippines after inking deals with Indonesia and Vietnam, which are key economies in the Asia region, the discussion with India is still ongoing. Despite multiple rounds of negotiations, an official announcement continues to be delayed. 

Earlier, the potential deal was expected to be announced before July 09, after the White House and Trump himself stated that an agreement with India would be finalized. However, the White House is reportedly demanding greater access for agriculture, dairy, and genetically modified (GM) products, which is delaying the signing of the deal, a demand New Delhi is reportedly denying in order to protect farmers.

In addition, India is seeking tariff rates lower than those granted to other Asian nations that have already signed deals with the US, in a bid to gain a competitive edge.

Meanwhile, the delay in concluding the deal is also dampening sentiment in the Indian stock market, with investors awaiting full clarity before the next leg of the rally, resulting in frontline indices trading in a tight range for most of July.

Geopolitical Chess: India caught between Washington and Moscow

According to Harshal Dasani, Business Head at INVasset, markets are currently grappling with three simultaneous overhangs—uncertain US trade policy, relentless FII selling, and uninspiring Q1 earnings. While the US recently signed a trade deal with the Philippines, talks with India remain stuck.

Dasani highlights Washington’s dual stance: on one hand, it’s pursuing selective trade alignments; on the other, it’s threatening up to 500% tariffs on countries trading with Russia.

This, he explains, puts India in a complex position, facing scrutiny for importing discounted Russian oil while still being courted for strategic cooperation. “But Washington cannot afford to alienate both India and China. The longer it delays a decisive stance, the closer India, China, and Russia move, which could be a geopolitical nightmare for the US. Meanwhile, markets dislike ambiguity. Investors are pricing in volatility not because of bad news, but due to the absence of clear direction,” said Dasani.

Dasani further adds that a tariff hike below 20% on Indian goods might even be digested positively by the markets, while anything higher could trigger a knee-jerk reaction.

The Street is well aware the US cannot sustain such elevated tariffs without inviting domestic backlash or triggering inflationary pressure. He also points out that FIIs have already pulled out over ₹22,185 crore in July alone, a move driven largely by a strengthening dollar and elevated US bond yields, adding to the pressure on Indian equities.

Q1 earnings, he says, have been mixed, with autos and banks under pressure while healthcare and capital goods have shown resilience. In this environment, positioning in domestic, policy-linked themes like defense, railways, and power, along with selective accumulation in small caps, remains the best course. Clarity—not comfort—will drive the next leg, he stated. 

India-US trade deal delays carry a cost

Sankhanath Bandyopadhyay, Economist at Infomerics Valuation and Ratings, said, “The delay in finalising a US-India trade deal underscores the complexity of balancing economic pragmatism with domestic sensitivities. For India, agriculture and dairy aren’t just trade sectors; they are the backbone of rural livelihoods, impacting over 700 million people.”

Meanwhile, the US is pushing hard for access to India’s high-tariff markets, especially in the agri- and digital sectors, while raising tariffs on Indian steel, aluminum, and auto exports. 

Unlike recent US trade partners like the UK or Vietnam, Sankhanath pointed out that India is not willing to concede on politically critical sectors and is instead negotiating from a position of strategic autonomy.

However, he cautioned that prolonged delays in concluding the deal could carry risks, which include lost export competitiveness, retaliatory tariffs, and a dent in the broader U.S.-India strategic alignment, including tech and defense cooperation. 

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