India's push for zero tariff on labour-intensive exports is combination of economic strategy & domestic politics: GTRI
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As negotiations for a long-anticipated Free Trade Agreement (FTA) between India and the United States enter their final stretch, India is making a last-minute, high-stakes push for full tariff elimination on its labour-intensive exports.According to Global Trade Research Initiative (GTRI), without duty-free access for sectors like garments, footwear, carpets, and leather goods, the deal could become politically unsellable at home. India's insistence is rooted in a combination of economic strategy and domestic political considerations.These labour-intensive sectors--dominated by small and medium enterprises and providing critical employment across states like Uttar Pradesh, Tamil Nadu, Gujarat, and West Bengal--contributed over USD 14.3 billion to India's exports to the U.S. in FY2025.Tariffs on these goods currently range between 8 per cent and 20 per cent, especially high for garments and footwear, putting Indian exporters at a steep disadvantage in the American market.While India has offered to reduce its Most Favoured Nation (MFN) duties on US goods as part of the deal, Washington appears unwilling to reciprocate.GTRI says the US is not ready to scrap either its high MFN tariffs or the country-specific duties that currently stand at 26 per cent, proposing instead a limited reduction to 10 per cent--still a significant surcharge that could negate any meaningful market access for Indian exporters.The imbalance has raised concerns in India that the FTA, if signed under the current terms, would disproportionately favour American exporters.Adding to the tension is the U.S. Congress's lack of fast-track trade authority, which limits Washington's ability to offer broad tariff concessions.India's broader export profile to the U.S. in FY2025 stood at USD 86.5 billion, up 11.6 per cent from the previous year. Of this, medium labour-intensity sectors--such as electronics, chemicals, automobiles, and jewellery--accounted for USD 44.6 billion.These exports face moderate U.S. tariffs of 2 per cent to 5 per cent, with some exceptions reaching 7 per cent. Meanwhile, low labour-intensity exports, such as pharmaceuticals and heavy machinery, totalling USD 17.3 billion, already benefit from minimal tariffs below 2 per cent and are not central to India's demand.India's position is that full tariff elimination is essential not only for equitable trade but also for social goals like employment generation, MSME empowerment, and increased economic participation by women.Indian negotiators caution that if Washington insists on retaining high tariffs while India cuts its own, the deal risks being perceived as "lopsided and politically untenable."
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