India: Trade agreements to attract foreign investment

BNP Paribas Team BNP Paribas

On 2 February, President Trump announced the approval of a trade agreement with India, reducing "reciprocal" tariffs on Indian imports from 25% to 18% and eliminating the 25% "penalty" imposed on oil purchases from Russia. As a result, Indian goods will face lower tariffs than those from Southeast Asian countries (excluding Singapore), especially Vietnam and Thailand.

While India has signed several trade agreements since last year (including a deal with the EU in January), these arrangements will mean it is no longer penalised compared to its Asian neighbours, both on the U.S. and European markets. However, the short- to medium-term impact on its growth will remain modest. The Indian government’s primary goal is to attract and retain foreign investment to develop its industry and create high-quality jobs.

Immediate cut in U.S. tariffs on Indian imports

On 2 February, President Trump announced that "reciprocal" tariffs on Indian imports would be immediately reduced from 25% to 18%, and the 25% penalty on Russian oil purchases would be lifted. The effective average tariff rate would therefore drop from 35.1% to 15.6%, which is lower than the rates for other Southeast Asian countries (excluding Singapore), especially Vietnam (19%) and Thailand (16.2%).

While the full details of the agreement are not yet public, India has reportedly pledged to cease Russian oil purchases and increase imports of U.S. (and possibly Venezuelan) oil—a shift that has already been underway since September (with a 70.1% increase in U.S. oil imports between September and November 2025 compared to the same period last year). In late 2025, Russia was still India’s leading crude oil supplier (33% of imports during the first 11 months of 2025, vs. 6.8% for the U.S.).

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BNP Paribas Team

BNP Paribas

BNP Paribas Economic Research Department is a worldwide function, part of Corporate and Investment Banking, at the service of both the Bank and its customers.

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