India-US trade deal has been widely welcomed by markets and exporters, but one unresolved issue could yet test the durability of the deal, according to CreditSights, a Fitch company. India’s commitment to halt Russian oil purchases in return for sharply lower US tariffs carries economic and political risks that may surface once the initial euphoria fades.
The India-US trade deal, announced by US President Donald Trump on Monday, will see Washington cut tariffs on Indian goods to 18% from 50%. In exchange, India has agreed to put zero tariff on US goods, lower trade barriers, halt purchases of Russian oil, and step up imports of oil and other goods from the US, and potentially Venezuela. India has confirmed the tariff reduction but has not commented publicly on the Russian oil aspect.
However, Russia said it hasn’t received any communication from New Delhi indicating that India plans to stop buying Russian oil.
Trump said India had committed to buying more than $500 billion worth of US energy, technology, agricultural and other products. A government official told Reuters on Tuesday that India has agreed to increase purchases of petroleum, defence goods, electronics, pharmaceuticals, telecom equipment and aircraft from the US.
“Ceasing all Russian oil purchases and stepping up US/Venezuelan oil purchases will likely increase India’s oil import bill, given higher freight costs and sanctions on Russia (Russian oil typically trades $6-$10 per barrel lower than Brent); this could affect inflation and government oil subsidies, though we note that inflation remains well contained within the RBI’s 2%-6% tolerance band,” the Fitch company said.