India-US trade: The economic relationship between India and the United States has reached a new level of dynamism in recent years. With bilateral trade surpassing $190 billion in 2023, the two nations continue to strengthen their strategic ties across various sectors. The growth of this partnership is driven by a combination of robust merchandise and services trade, with both countries benefiting from complementary strengths. However, challenges remain, particularly in sectors like agriculture, energy, and technology.
The data from January to July 2024 highlights the importance of the United States as India’s trading partner. During this period, India’s merchandise exports to the US increased by 9.3%, reaching $48.2 billion, up from $44.1 billion in 2023. This growth is a reflection of the strong demand for Indian products such as textiles, pharmaceuticals, machinery, and diamonds in the American market. Notably, India’s merchandise exports have shown an impressive increase of 54.4% between 2018 and 2023, rising from $54.3 billion to $83.8 billion.
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The trade trajectory
On the flip side, US exports to India have not experienced the same level of growth. Merchandise exports from the US to India grew by a modest 20.8% over the same five-year period, from $33.2 billion in 2018 to $40.1 billion in 2023. In the services sector, the disparity is similar — India’s services exports to the US increased by 25.6%, compared with an 18.7% growth in US services exports to India.
This divergence in export growth rates can be attributed to several factors, including India’s growing focus on domestic manufacturing and its increasing reliance on services sectors such as IT and IT-enabled services. Moreover, India’s resilience in sectors like pharmaceuticals and engineering products has allowed it to capitalise on American market demands, even as global trade faces uncertainties.
India-US trade: Drivers of growth
The diversity of India’s exports to the US reflects its broad industrial base. In 2023, the leading export categories included textiles, garments, and made-ups ($9.1 billion), pharmaceuticals ($7.5 billion), petroleum oils ($6.4 billion), and diamonds ($5.9 billion). These industries not only drive India’s trade surplus with the US but also highlight its competitive strengths in sectors such as healthcare, energy, and engineering.
Conversely, the US exports to India are concentrated in high-value sectors like petroleum crude and oils, liquefied natural gas (LNG), coal, and machinery. In 2023, the US exported $7 billion worth of crude petroleum and $6.9 billion in petroleum oils to India, reflecting India’s substantial energy needs. The ongoing hydrocarbon trade, which reached $13.6 billion in 2023-24, is testimony to the US’ role as India’s sixth-largest energy partner. Moreover, this energy trade is expected to grow further as both nations explore opportunities in clean energy solutions, hydrogen, and carbon capture technologies.
The energy partnership is not just about traditional fuels. India’s energy minister Hardeep Singh Puri has said that the trade potential between the two countries exceeds $500 billion, driven by deeper collaboration in renewable energy, biofuels, and carbon management technologies. This strategic shift aligns with India’s goal of reaching net-zero emissions by 2070, with the US providing critical technology and expertise.
The services sector
Services trade remains a cornerstone of India-US relations, with both countries deriving significant economic value from their complementary strengths. India has cemented its position as a global leader in IT and business process outsourcing, with its services exports to the US rising from $28.9 billion in 2018 to $36.3 billion in 2023. This 25.6% increase demonstrates the high demand for India’s tech-driven services, which provide vital support to American businesses.
At the same time, the US dominates in services like intellectual property, travel, and financial services, where its exports to India grew by 18.7% during the same period. These areas reflect the advanced technological and financial capabilities of the US, which continue to find a growing market in India’s expanding economy.
Challenges in agricultural trade
Despite the overall positive trajectory, certain sectors face hurdles that need to be addressed for smoother trade. Agriculture is one such area, where tariff barriers and quality standards have impeded the growth of bilateral trade. While India’s agricultural exports to the US represent 10% of its total agro exports, they account for only 2.6% of US farm imports. This indicates significant untapped potential.
The need for harmonisation of standards and lowering of tariffs is critical for increasing agricultural trade. As industry experts pointed out at the 21st Indo-US Economic Summit, supply chain disruptions and the absence of a free trade agreement (FTA) have also contributed to slow growth. However, advances in technology, particularly the integration of artificial intelligence and climate-smart agriculture, present an opportunity to overcome these barriers.
FDI: Strengthening the bond
Foreign direct investment (FDI) continues to play a crucial role in India-US trade relations. In 2022, US FDI in India reached $51.6 billion, concentrated in key sectors like manufacturing, professional services, and information services. This inflow of investment highlights America’s strategic interest in India’s growing market. Conversely, India’s FDI in the US stood at $3.7 billion, underscoring the mutual benefits from cross-border capital flows.
The deepening FDI relationship is also reflected in collaborations in advanced sectors like clean energy, defence, and technology. The signing of multiple agreements at global forums, including the G20, demonstrates both nations’ commitment to fostering industrial growth and innovation.
With bilateral trade hovering around $200 billion, there is immense potential for India and the US to expand their economic partnership. The next phase of growth could see trade volumes reach $500 billion, driven by sectors like clean energy, technology, pharmaceuticals, and defence. Both countries are already working to strengthen their strategic partnership, with recent dialogues focusing on issues like carbon capture, energy security, and agricultural trade.
However, for this growth to materialise, several structural issues need to be addressed. Lowering trade barriers, harmonising regulatory standards, and establishing frameworks for digital and intellectual property trade will be essential. With the world’s two largest democracies cooperating across sectors, the future of India-US trade looks promising—poised to become a critical driver of global economic growth.