Why Narendra Modi Can't Compromise On Market Access To Us On Agri, Dairy?
The India-US trade war over Donald Trump's 50 per cent tariff on Indian exports to the USA with effect from August 27 this year has assumed a major political dimension linking the political future of both Indian Prime Minister Narendra Modi and the United States President Donald Trump. For Narendra Modi, the outcome has also personal implications as the decision impacts the future of farmers as also dairy industry in his own state Gujarat.
The trade disputes have always have got major political dimensions, but in the current India-US trade talks, five rounds of which have already taken place, the main focus has shifted to the US demand for market access to the Indian agriculture and dairy sectors. The US farmers bodies as also the companies which are involved in agri and dairy products are anxiously waiting as for the first time, the vast Indian market of 1.42 billion population will be opened up to them if Narendra Modi agrees to the Trump pressure in the final round of talks.
Why the market access is crucial for the Republican President Donald Trump at the India-US trade talks? The farmers organisations are very powerful in shaping the direction of US politics and they have big political lobbies in the US Congress covering both Republicans and Democrats. The appeasement of the US farmers lobby is a distinct part of the Republicans who depend on the farmers votes in the elections, especially in the swing states. The midterm elections to the Congress and the Senate are due in November 2026. Both Republicans and Democrats are poised for a bitter battle in this crucial poll. The farmers, across the US, especially in the six swing states of the US, will be a determining factor in the 2026 polls.
Trump is under tremendous pressure from the US farm lobby which is also a big contributor to the President's election campaign. Any compromise by Trump meaning denial by Narendra Modi of market access to vast agri and dairy sectors in India as also fisheries, will be used by the Democrats in the election campaign terming it as the let down of the farmers by President Trump. Trump can not afford this setback at this hour. That is why the US President is so angry with Prime Minister Narendra Modi since the Indian negotiators in the last round of trade talks in Washington firmly told the US side that no market access to Indian agriculture could be allowed. That is the reason Trump reacted in anger by saying that no further trade talks if tariff issues were not solved.
The US team was scheduled to arrive in New Delhi for another round of talks on August 25 this year, but Trump's remarks have cast shadow on the certainty of the Sixth Round of India-US trade talks though till now, the Indian side has got no formal indication for cancellation of the visit. But the signal is clear. The additional 25 per cent tariff due to India's buying of Russian oil is going to take effect from August 27. Trump wants India to indicate two things-first no buying of Russian oil from now and granting market access to the US in Indian agriculture sector.
Now for Prime Minister Narendra Modi, it is politically suicidal for him to agree to any of the Trump's two demands. The Russian oil tariff issue can be sorted out if there is a sort of agreement between Trump and Putin at the Alaska meeting on August 15. If the final understanding takes a few days more after August 15 following the possibility of a final meeting with Ukraine President Volodymyr Zelensky, there is possibility of an escape route on additional 25 per cent tariff if an agreement is reached by the end of the month. But on market access in Indian agriculture issue, the US side is adamant at the directive of Trump. Trump may not agree to the total trade deal if India does not agree to granting US market access in agriculture and dairy industry.
Right now as on August 13, two days before the Independence Day address of the Indian Prime Minister, indications are that Narendra Modi has decided to fight President Trump on the agriculture and dairy industry issue. On Thursday, Prime Minister was candid in declaring that he would not compromise farmer's interests and was even ready to pay a heavy personal price to protect the farmers. On Tuesday, the farmers organisations thanked the Prime Minister for his stand to protect the interests of the farmers. Prime Minister in his Independence Day address from Red Fort is expected to take this economic sovereignty and farmers interests issues to a high pitch and try to combat opposition challenge on SIR and Bihar polls.
For Narendra Modi, there are some major political compulsions to project him as the protector of farmer's interests and defy Trump pressure on trade and tariff. The agriculture sector has 54.6 per cent of the total Indian workforce while the agriculture and allied activities account for 18.4 per cent of GVA at current prices during 2022-23. Similarly, the dairy market in India is most thriving and its business value in 2024 is estimated at Rs. 18.9 billion. The dairy industry employs eight crore people. Gujarat is the leader along with Uttar Pradesh and Rajasthan, All are BJP controlled states. As the topmost BJP leader and RSS man, Narendra Modi instinctively can not take any other position. He is getting full backing from the RSS.
The US has not only been demanding low tariffs on certain farm products such as corn, soybeans, apples, cotton, almonds and ethanol, but also pitching for allowing entry of its genetically modified produce like maize, soy, canola and cotton into the Indian market. India can not agree to this absurd US demands at the cost of the Indian farmers. The US farmers are highly subsidized by the government. There is a continuous fighting between the farmers of USA and European Union on the extent of subsidy. The EU nations are also known for giving high subsidy to their farmers.
New Delhi has traditionally kept agriculture out of Free Trade Agreements with other nations. Granting market access to the US could force India to extend similar concessions to other trading partners. The average Indian farm comprises just 1.08 hectares, compared to 187 hectares in the US. In dairy, the average herd size in India is two to three animals per farmer, compared to hundreds in the US. This difference makes it difficult for small Indian farmers to compete with their US counterparts.
The Global Trade Research Initiative (GTRI) has cautioned that permanent reduction of agricultural tariffs in the India-US free trade agreement could result in subsidised US grains overwhelming Indian markets during global price downturns. Past evidence shows that global grain prices plummeted between 2014 and 2016, with wheat prices falling under $160 per tonne, devastating African farmers. Food security is a major concern in a highly populated country like India. Indian leaders can not opt for a policy which will allow the market to be dominated by the others having no interest in the well being of the Indian farmers.
Latest figures indicate Indian exports to USA in 2024 totalled US$ 78 billion. Out of this total, 55 per cent , will be impacted by the Trump tariff of 25 per cent now and 50 per cent from August 27 if there is no India-US understanding. The labour intensive sectors like textiles, apparels, gems and jewellery are the areas which have been impacted most.. Already, one lakh gem jewellery workers have been affected in Surat, the apparels and textile owners fear the adverse impact affecting lakhs of workers since the US is the prime destination of exports for their products. This is a serious situation at a time when the employment situation in the country is already precarious.
Prime Minister Narendra Modi has to take all the factors into account. If the US does not continue the trade talks further and India has to pay the additional tariff of 50 per cent from August 27, the adverse impact on Indian economy will be felt immediately and it will intensify. PM has to work out an alternative based on hard analysis of the global trade potentialities. For India, this crisis due to Trump's tariff can be turned into an opportunity to rebuild India. On the basis of strategic independence without depending heavily on any nation. Whether the BJP Prime Minister will take the bait, that is the million dollar question. (IPA Service)
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