Modi-Trump talks: Five key takeaways
2025-02-14
Category: economic

Despite the hype, Indian Prime Minister Narendra Modi's first visit to Washington under Donald Trump's second term was a sober, business-first affair - unsurprising for a working visit, which lacks the pomp of a state visit.Trump announced expanded US military sales to India from 2025, including F-35 jets, along with increased oil and gas exports to narrow the trade deficit. Both sides agreed to negotiate a trade deal and finalise a new defence framework. He also confirmed the US had approved the extradition of Tahawwur Rana, a Chicago businessman accused of playing a role in the 2008 terror attack in Mumbai."That's a lot of deliverables for an administration less than a month old," Michael Kugelman of the Wilson Center's South Asia Institute in Washington told the BBC"Overall, both sides seem comfortable continuing Biden-era collaborations, particularly in tech and defence, though many will be rebranded under Trump."Still, major challenges lie ahead. Here are the key takeaways:
Did India dodge the reciprocal tax bullet?
Modi's visit came as Trump ordered that US trading partners should face reciprocal tariffs - tit-for-tat import taxes to match similar duties already charged by those countries on American exports. He ordered advisers to draft broad new tariffs on US trade partners, warning they could take effect by 1 April.India enjoys a trade surplus with the US, its top trading partner. India cut average tariffs from 13% to 11% in its federal budget in a bid to pre-empt Trump's tariff moves. The jury is out on whether India appears to have dodged tariff shocks for now.Ajay Srivastava, founder of the Delhi-based think tank Global Trade Research Institute (GTRI), says he doesn't see any "problems with tariffs".The main reason, he says, is that 75% of the US exports to India attract import taxes of less than 5%."Trump points to extreme outlier tariffs like 150% on select items, but that's not the norm. India has little reason to fear reciprocal tariffs," Mr Srivastava told the BBC.Abhijit Das, former head of the Centre for WTO Studies at the Indian Institute of Foreign Trade, isn't convinced."The devil lies in the details. Reciprocal tariffs won't just mirror India's import taxes -other factors will come into play," he told the BBC.Trump's approach could go beyond import duties, factoring in value added tax (VAT), non-tariff barriers and trade restrictions. While India's goods and services tax (GST) on imported goods aligns with WTO rules, Trump may still use it to justify higher tariffs.A US government memo on reciprocal tariffs hints at this strategy, citing costs to American businesses from non-tariff barriers, subsidies and burdensome regulations abroad. It also cites VAT and government procurement restrictions as non-tariff barriers.
Mr Das says the US is expected to push for access to India's government procurement market, which is currently protected under WTO rules. "This will hamper India's ability to prioritise domestic producers, posing a direct challenge to the 'Make in India' initiative. This is certainly not good news for us." Mr Das suggests that India should counter Trump's reciprocal tariff logic, particularly in agriculture where the US imposes strict non-tariff barriers that restrict Indian exports such as stiff maximum residue limits on chemicals. He argues that since the US "heavily subsidises" its farm sector, India should highlight these subsidies to push back against American claims.Tariffs alone may not help bridge the trade deficit between the two countries. Defence and energy purchases will go some way in addressing the deficit, experts say.
Doubling US-India trade to $500bn by 2030
The new $500bn (£400bn) trade goal aims to more than double the $190bn trade between the two countries in 2023.Modi and Trump committed to negotiating the first phase of a trade agreement by autumn 2025. Talks will focus on market access, tariff reductions and supply chain integration across goods and services."The announcement that the two sides will pursue a trade deal gives India an opportunity to negotiate for reduced tariffs on both sides. That would be a boon not only for the US-India relationship, but also for an Indian economy that's sputtered in recent months," says Mr Kugelman.What is not clear is what kind of trade deal the both sides will be aiming at."What is this trade agreement? Is it a full blown free trade agreement or is it a reciprocal tariff deal?" wonders Mr Srivastava. Mr Das believes we'll have to wait for details on the trade agreement. "It doesn't necessarily mean a free trade deal - if that were the case, it would have been stated explicitly. It could simply involve tariff reductions on select products of mutual interest."Priyanka Kishore, principal economist at the Singapore-based consultancy firm, Asia Decoded, says $500bn is a "tall target but there are low hanging fruit we can immediately exploit"."For instance the US sanctions on Russian shadow fleet are soon going to kick in, so India can easily pivot to the US for more oil. This will not be too difficult."Trump said at the joint press conference that the US would hopefully become India's number one supplier of oil and gas. 
Multi-billion dollar US defence deals, including fighter jets
India's defence trade with the US has surged from near zero to $20 billion, making the US its third-largest arms supplier. While Russia remains India's top source, its share has dropped from 62% to 34% (2017-2023) as India shifts toward US procurement.In a major announcement to deepen defence ties, Trump said the US would increase military equipment sales to India "by many billions of dollars starting this year" ultimately paving the way to providing the F-35 stealth warplanes.But this will be easier said than done, say experts."This sounds good, but it may be a case of putting the cart before the horse," says Mr Kugelman.Despite rising US arms sales to India, bureaucratic hurdles and export controls limit the transfer of sensitive technologies, he says. The new defence framework announced at the summit may help address these challenges.Also India isn't "taking the F-35 offer seriously" due to high maintenance demands, says strategic affairs expert Ajai Shukla. Shukla notes that US arms deals come with challenges - private firms prioritise profit over long-term partnerships. Yet with delays and cost overruns affecting some of India's arms deals with Russia, Delhi's defence ties with the US look set to deepen.
Modi meets Musk even as Tesla's India plans still in limbo
Modi met Tesla CEO Elon Musk to discuss AI and emerging tech, India's foreign ministry said.It's unclear if they addressed Musk's stalled plans for Starlink's India launch or Tesla's market entry. Musk has pushed for direct spectrum allocation, clashing with Indian billionaire Mukesh Ambani, who favours auctions. His licence remains under review.India is also courting Tesla to set up a car factory, cutting EV import taxes for automakers committing $500m and local production within three years. Tesla has yet to confirm its plans.
Taking questions - a rare departure for Modi
In a rare move, Modi joined Trump at a press conference, answering two questions - on illegal immigration and the US Department of Justice (DOJ) bribery charges against the Adani Group.Indian billionaire Gautam Adani, accused of close ties with Modi, was charged with fraud in the US last November over an alleged $250m bribery scheme. Modi said he hadn't discussed the issue with Trump. On immigration, he stated India was ready to take back verified illegal Indian migrants.This was only Modi's third direct press Q&A in his almost 11-year tenure as India's prime minister. He has never held a solo press conference. In 2019 he sat beside then party president Amit Shah as Shah answered all the questions and in 2023, he took just two questions alongside former President Joe Biden.