📰U.S.-India Free Trade Agreement Update

Good evening, 

Welcome to the best way to stay up-to-date on India’s financial markets. Here’s what’s in today’s newsletter:

• India and the US have quietly calibrated a fast-track path toward an interim trade agreement,

• Another indicator of consumer sentiment rises,

• and India is trying to use airplane purchases to rebalance the trade deficit with the U.S.

Then, we close with Gupshup, a round-up of the most important headlines.

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—Shreyas, [email protected]

Market Update.

U.S.-India Free Trade Agreement Fast-Tracked.

India and the US have quietly calibrated a fast-track path toward an interim trade agreement by this fall. New Delhi’s chief negotiator Rajesh Agrawal led a delegation in Washington last week to iron out “early mutual wins.” This roadmap covers 19 sectors from agriculture and manufactured goods to e-commerce and digital trade and aims to leverage the 90-day tariff moratorium that began on April 2. There is only a 10 percent flat tariff on Indian imports until early July, granting both sides a narrow window to finalize concrete concessions before duties automatically kick back in.

Negotiations: India has already cut duties on some 8,500 American products like bourbon and key industrial inputs to demonstrate flexibility, while pressing the US to recognize India’s sensitivity on farm tariffs and data-localization requirements. Sector-specific working groups, which have met virtually since early April, now plan in-person sessions from late May to tackle sticking points such as agricultural safeguards, automotive rules of origin, digital-service taxation, and regulatory recognition for professional-services exports. The goal is to convert broader strategic goodwill, underscored by Treasury Secretary Bessent calling India “first in line” for a deal, into measurable market-access gains that can be implemented immediately upon signing.

Indian stakes: Its $820 billion (₹69.7 trillion) in annual exports face an outsized risk from Trump’s 26 percent tariff threat, particularly in pharmaceuticals, textiles, and auto-components. A swift agreement could avert a 0.5 percent drag on India’s GDP growth in FY26 and shore up investor confidence to keep increasing the $1 billion (₹85 billion) of foreign equity inflows since early April. 

Success hinges on New Delhi’s ability to balance domestic sensitivities (protecting small-scale farmers and data-sovereignty measures) against the Trump administration’s insistence on lower tariffs, stronger IP protections, and expanded defense procurement. The coming weeks will test whether “early mutual wins” can indeed be translated into binding commitments, or if both capitals will find themselves relitigating the same gridlocked issues once the tariff respite expires.

Corporations Report Positive Consumer Demand.

Unilever’s India business says that city shoppers are no longer cutting back on expensive products as much as before, a positive sign for the economy. CFO Ritesh Tiwari noted that volume growth from April through September is already outpacing the preceding six-month period, and that trading up to standard-size packs is beginning to resume. This recovery coincides with a 29 percent y-o-y jump in Reliance Retail’s quarterly profits, bolstered by the Maha Kumbh Mela and a resurgence in festive buying.

Macro tailwinds: F.M. Sitharaman’s February budget unleashed roughly $12 billion (₹1 trillion) in tax concessions aimed at boosting household disposable income, while the RBI’s recent 25 basis-point repo cut pushes the benchmark rate down to 6 percent, reviving credit demand. Inflation slid to 3.34 percent in March, its lowest in six years, granting policymakers room to ease further. Meanwhile, forecasts of a 105 percent-of-normal monsoon bolster rural incomes since agriculture employs 40 percent of the workforce and accounts for 25 percent of GDP. A strong harvest ripples to urban consumption via higher demand for consumer durables and food staples.

Some obvious headwinds: Tariffs could soften global demand and cause effects on exports and private investment to deepen the downturn, especially in export‐linked pockets such as pharmaceuticals and auto components. Other analysts point out that labor‐market gauges remain uneven: urban wage growth is recovering, but rural wage gains lag, leaving aggregate consumption on a knife’s edge.

Real estate and housing finance players are already anticipating a return to buoyant spending. Lodha Macrotech expects mid-income housing sales to rise as tax rebates and rate cuts lift affordability, while Shriram Finance sees auto‐loan enquiries in metro India climbing back to pre-slowdown levels over the next two quarters. UltraTech Cement has guided toward double‐digit volume growth on the back of renewed construction activity, and DLF forecasts 8–10 percent growth in retail‐mall revenues by March 2026 after a tepid previous year. These bottom-up indicators suggest a broad‐based uptick in both necessity and discretionary categories, from engine oil and cement to cosmetics and apparel.

Accordingly, some corporations are treading carefully. Tata Consumer Products has tempered its café‐rollout plans, citing soft consumer sentiment, while Maruti Suzuki projects a modest 2 percent uptick in auto volumes next fiscal. These cautious stances clash with the more bullish outlooks of retailers and builders, creating a divergence in capex and expansion strategies. The coming quarter is critical given the diverging growth views from real‐wage growth and urban job creation.

India is Using Airplanes As Offsets Against Trade Surpluses.

Indian negotiators are pointing to 590 jets valued at $67 billion (₹5.7 trillion) of Boeing aircraft orders across Air India, SpiceJet, and Akasa Air to argue the United States’ reported trade deficit of $47 billion (₹4 trillion) with India is not as high as told. Considering airplane orders, the U.S. would have a trade surplus with India, which Indian officials argue calls for the lifting of American tariffs on Indian goods.

A critical push: The Commerce Ministry shows that aerospace equipment accounted for nearly $6 billion (₹510) in imported goods last year, second only to electronics and machinery, while Boeing’s global backlog stood at about 5,000 aircraft as of April, meaning roughly 12 percent of its order book hinges on Indian carriers. By tabulating these multi‐year purchase agreements as immediate “market access” concessions, New Delhi hopes to blunt U.S. complaints that its export bill tilts too heavily toward Washington while simultaneously locking in a surge of bilateral aerospace trade that would support thousands of American manufacturing jobs.

A similar Vietnamese tactic: In Hanoi’s case, the argument helped propel negotiations forward under a broader Indo‐Pacific Economic Framework, and India’s dealmakers are banking on similar optics. Yet the mechanics differ: Vietnam’s concessions centered on steel and electronics tariffs, whereas India must reconcile high U.S. demands for reduced agricultural and digital‐service barriers. By positioning commercial aircraft orders — fully financed by private carriers through foreign‐currency loans — as a low‐political‐cost give in trade talks, New Delhi hopes to secure tariff relief without exposing the Modi government to backlash from rural constituencies.

Sorry, Airbus. Of the nearly 900 commercial passenger jets registered domestically, Airbus’s A320 family still dominates with 538 airframes versus just 140 Boeing 737s. Yet recent leasing of four Boeing 787 Dreamliners by IndiGo for key Middle East routes, coupled with IndiGo’s expressed interest in MAX 10 deliveries post-2027, suggests an evolving fleet strategy that balances diversification, range, and financing costs. Indian negotiators argue that honoring these Boeing commitments through down payments, maintenance, and pilot-training contracts will translate directly into U.S. exports of spare parts, simulators, and MRO services, potentially adding another $2–3 billion (₹170-255 billion) to the services ledger.

Behind the scenes, Indian trade officials have already shared detailed spreadsheets with the U.S. Trade Representative, matching each carrier’s LOI with Boeing to projected payment schedules and local‐content initiatives. They are also pressing for recognition of Buy American waivers for parts manufactured in Modi’s Make in India aerospace parks, which have attracted foreign direct investment of over $1 billion (₹85 billion) in the past two budget cycles. If USTR agrees to count these items as tariff‐offset credits, India could argue that it is offering immediate economic benefits.

In the past, US negotiators have resisted treating commercial aircraft deals as currency in tariff discussions since those are business decisions.  Moreover, any accord that exempts aerospace equipment from reciprocal levies could set a precedent for other sectors, prompting calls from auto and steel lobbies in both countries to secure similar carve-outs. 

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Gupshup.

Macro

• Indian refiners are purchasing 11.2 million barrels of crude in June from the US. There has been a precipitous drop in WTI prices, and refinery overhauls in Southeast Asia have caused reduced appetite. The increase in imports can also be used as a bargaining chip during tariff negotiations.  

• Bonds in India continue rallying with a $15 billion (₹1.3 trillion) RBI purchase. This is expected to coincide with a substantial dividend payout from the RBI to the government, which will further push down 10-year yields, which fell 7 basis points on the news. The aggressive liquidity enhancement has now surpassed the pandemic-era levels set by the RBI.  

• ICICI Prudential is positioning itself in 15-year and longer bonds. They see future growth in longer-end bonds after short-end bonds have already come down a lot. This is due to falling inflation perceptions in the longer end of the yield curve.  

Equities

• IndusInd Bank's CEO is resigning over a $230 million (₹19.6 billion) accounting discrepancy in the bank's derivative book. He had been with the bank for over 17 years and admitted that he took moral responsibility for the mishaps. The RBI is creating an oversight committee to run the bank instead of the CEO.  

• Adani Green reported a profit of $27 million (₹2.3 billion), up 53 percent y-o-y. There was a record capacity addition, especially to the solar unit of the company. Rising profits are important to raise the credit profile of the Adani subsidiary after multiple US bribery charges came out. Total expenses only rose 12 percent in the same period.  

• Bajaj Finance is likely to report record profits for a 13th quarter. The shadow lender has seen success with small-scale loans, but likely will not see the stock appreciate meaningfully, given the 33 percent performance y-t-d. 

Alts

• SBI is planning a big fundraising through share sales. There will either be a common stock sale, rights issue, or qualified institutional placement, though the amount raised is unknown at this point in time.  

Policy

• China says that there are no plans to dump steel and other goods in India. The move is another step in China’s campaign to malign the US. By promising not to take part in anti-competitive practices, the world is more likely to raise trade with China. Beijing is calling for more Indo-Sino cooperation, with the two countries contributing to 36 percent of global economic growth over the next 5 years.  

• India-Canada tensions are easing with Modi congratulating Carney. He announced on Twitter that he was happy that Carney won and that he looks forward to sharing democratic values and vibrant people-to-people ties. 

• Pakistan reports shooting down an Indian spy drone. Just hours before this, a top Pakistan defense official warned of the possibility of war with India.

See you Wednesday.

Written by Yash Tibrewal. Edited by Shreyas Sinha.

Disclaimer: This is not financial advice or recommendation for any investment. The Content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.