Trump has paused tariffs, but Indian farm sector remains on edge

While the world debates Trump tariffs, with a trade war appearing be just one tweet away, India’s agricultural sector stands at a delicate crossroads.

Heavily reliant on the monsoon, volatile crop yields and unpredictable demand from both domestic and international buyers, its future seems shaped by uncertainty.

The Donald Trump administration initially targeted Indian agricultural imports with a proposed 26 per cent tariff, and then paused the move. Yet, the back-and-forth has left global buyers on edge, wary of what might come next.

India’s trade surplus

India typically has a trade surplus with the US in agricultural goods, exporting a diverse range that includes basmati rice, shrimp, wheat and buffalo meat.

In the meat and processed food category alone, US exports to India stood at $1.94 billion in 2024 while imports from India totalled a significantly higher $6.04 billion, according to data from JM Financial. On April 2, Trump announced a 10 per cent universal tariff on all US imports, effective April 5, with additional “reciprocal” tariffs (11–50 per cent) on imports from 57 countries set to begin April 9.

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Just before these elevated tariffs were to take effect, a 90-day suspension was announced for all countries except China. The base 10 per cent tariff remains in place. The 90-day pause ends on July 8.

"We are hopeful that by the end of the 90-day period, there will be some positives," KV Mohanan, National Vice President of the Seafood Exporters Association of India, told The Federal.

Perception vs reality

According to JM Financial data, in agriculture, meat, and processed food, the weighted average tariffs faced by US exports to India is 37.66 per cent in 2024. In contrast, Indian exports face just 5.29 per cent tariffs in the US — a stark 32.37 per cent differential.

This is an asymmetry the Trump administration deems unfair and is using to justify its reciprocal tariffs.

But analysts say there is a misrepresentation of the true tariff gap between the two countries. They point to a discrepancy in tariff calculations arising from the inclusion of non-tariff measures, which significantly inflate the figures.

"The reference rate used while calculating the tariffs is a rather complicated number that appears to include non-tariff measures like domestic taxes and currency manipulation,” Bernstein analysts Venugopal Garre and Nikhil Arela said in a note. “This leads the US to calculate 52 per cent tariffs imposed by India on US goods (far higher than the actual tariff of around 10 per cent), and halving this number to come up with 26 per cent tariffs on India."

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Narrative matters

The analysts called the inclusion of India’s domestic taxes “strange,” noting that these levies apply universally to all goods sold in the country — not just to imports.

JM Financial analyst Hitesh Suvarna added that while the US set India’s reciprocal tariff at 26 per cent based on that inflated 52 per cent figure, the "real tariff gap is closer to just 4.9 per cent once all trade barriers are fairly evaluated".

This stark perception gap highlights how global trade is often shaped more by narrative than by hard data.

Meanwhile, India has charted a careful course, refraining from retaliatory tariffs, unlike China (15 per cent) or Canada and the European Union (25 per cent).

Dialogue over retaliation

In response to US tariff actions, India has offered tariff reductions on certain US agricultural products such as almonds, walnuts and cranberries, aiming to mitigate potential trade tensions and foster a more balanced trade relationship.

“The Indian government’s approach has been collaborative till now, which is evident in the duty reduction in the budget announcements. Moreover, India avoided any retaliatory moves against the US,” Suvarna noted.

But as US frustration simmers — highlighted in its National Trade Estimate report — the risk of further escalation remains.

Also read | Why retaliatory tariffs on US do not make sense for India

Trade associations in India are hopeful of a diplomatic resolution. The Seafood Exporters Association of India said it has made representations to the Centre, meeting Commerce Ministry officials on February 17 and 18 to discuss the impact of Trump’s proposed “reciprocal tariffs” on Indian seafood exports.

A bright spot, says RBI

Despite these geopolitical crosswinds, the Reserve Bank of India (RBI) has struck a hopeful tone on agriculture.

Citing healthy reservoir levels and robust crop production, the RBI projected bright prospects for rural output — making agriculture a rare bright spot in an otherwise uncertain macroeconomic environment.

For Dhananjay Sinha, co-head of Equities and Head of Research at Systematix Institutional Equities, this optimism is key to India’s economic resilience.

“Agriculture remains a silver lining due to better monsoon. In India, given weak domestic demand and heightened global protectionism, markets will likely be driven by government policy responses to combat the headwinds and call for a defensive investment strategy,” he noted.

In a world bracing for protectionism and policy pivots, the crosshairs of trade war politics and domestic policy may land squarely on agriculture — but not necessarily to its detriment, say analysts.

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Shrimp exports may remain stable despite tariff noise, due to their small share in overall US food expenditure. Basmati rice might temporarily lose ground on cost competitiveness but India could still capture market share vacated by more heavily taxed competitors like China, Vietnam and Thailand.

Points to ponder

Analysts point to what happened in the past, when India banned certain rice category exports but Africa and Southeast Asia were quick to fill in the gap.

India imposed two key rice export bans — on broken rice in September 2022 and non-basmati white rice on July 20, 2023 — to manage domestic supply and control rising food prices. These decisions had ripple effects across global markets.

According to a report by the NTU-SBF Centre for African Studies at Singapore's Nanyang Technological University, countries like Thailand and Vietnam were quick to fill the supply gap in Africa, leveraging their strong export capabilities to capture market share left vacant by India.

Also read | India accuses Pakistan of Basmati rice piracy, plans to move global fora

Even pre-Trump tariffs, the International Monetary Fund (IMF) had warned that protectionist measures could intensify food price volatility. Pierre-Olivier Gourinchas, chief economist in the IMF, said that retaliatory trade moves could disrupt the already fragile equilibrium in global agricultural markets.

A compelling point for India to weigh its agriculture market-related options carefully.