India eyes tariff cut on more than half of US imports to shield its exports, sources say

By Sarita Chaganti Singh, Aftab Ahmed and Manoj Kumar

NEW DELHI (Reuters) - India is open to cutting tariffs on more than half of U.S. imports worth $23 billion in the first phase of a trade deal the two nations are negotiating, two government sources said, the biggest cut in years, aimed at fending off reciprocal tariffs.

The South Asian nation wants to mitigate the impact of U.S. President Donald Trump's reciprocal worldwide tariffs set to take effect from April 2, a threat that has disrupted markets and sent policymakers scrambling, even among Western allies.

In an internal analysis, New Delhi estimated such reciprocal tariffs would hit 87% of its total exports to the United States worth $66 billion, two government sources with knowledge of the matter told Reuters.

Under the deal, India is open to reducing tariffs on 55% of U.S. goods it imports that are now subject to tariffs ranging from 5% to 30%, said both sources, who sought anonymity as they were not authorised to speak to the media.

In this category of goods, India is ready to "substantially" lower tariffs or even scrap some entirely, on imported goods worth more than $23 billion from the United States, one of the sources said.

India's trade ministry, the prime minister's office and a government spokesperson did not reply to mail seeking comments.

Overall the U.S. trade-weighted average tariff has been about 2.2%, data from the World Trade Organization shows, compared with India's 12%. The United States has a trade deficit of $45.6 billion with India.

During Prime Minister Narendra Modi's U.S. visit in February, the two nations agreed to start talks towards clinching an early trade deal and resolving their standoff on tariffs.

New Delhi wants to strike a deal before the reciprocal tariffs are announced and Assistant U.S. Trade Representative for South and Central Asia Brendan Lynch will lead a delegation of officials from United States for trade talks from Tuesday.

The Indian government officials warned that cutting tariffs on more than half of U.S. imports hinges on securing relief from reciprocal tax.

The tariff cut decision was not final, with other options under discussion such as sectoral adjustments of tariffs and product-by-product negotiations rather than a wide cut, said one of the officials.

India is also considering wider tariff reform to lower barriers uniformly, but such discussions are in early stages and might not figure immediately in talks with the United States, said one of the officials.

TRUMP ADAMANT ON TARIFFS

Even though Modi was among the first leaders to congratulate Trump on his election victory in November, the U.S. president has continued to call India a "tariff abuser" and "tariff king", vowing not to spare any nation from tariffs.

New Delhi estimated increases of 6% to 10% in tariffs on items such as pearls, mineral fuels, machinery, boilers and electrical equipments, which make up half its exports to the United States, due to reciprocal tax, both sources said.

The second official said the $11 billion worth of pharmaceutical and automotive exports may see the most disruptive impact due to reciprocal tariff, given their dependence on the U.S. market.

The new tariffs could benefit alternative suppliers like Indonesia, Israel and Vietnam, the official added.

To ensure political acceptance by Modi's allies and the opposition, India has set clear red lines for the negotiations.

Tariffs on meat, maize, wheat and diary products that now range from 30% to 60%, are off the table, a third government official said. But those on almonds, pistachio, oatmeal and quinoa may be eased.

New Delhi will also push for phased cuts in automobile tariffs, now effectively more than 100%, a fourth official said.

India's tightrope walk on the matter was highlighted by comments its trade secretary made to a parliamentary standing committee on March 10 and remarks by U.S. Commerce Secretary Howard Lutnick.

India did not want to lose the United States as a trading partner, Sunil Barthwal told the committee, but vowed at the same time, "We will not compromise on our national interest," according to two people who attended the closed-door meeting.

Lutnick asked India to "think big" after it cut tariffs on high-end motorcycles and bourbon whisky this year.

"To date, the Modi government has shown little appetite for sweeping tariff cuts of the kind Trump is seeking," said Milan Vaishnav, an expert on South Asian politics and economy at the Carnegie Endowment for International Peace think-tank.

"It is possible the Modi government could use external pressure from the Trump administration to enact politically costly, across-the-board cuts, but I am not holding my breath."

(Additional reporting by Shivangi Acharya; Editing by Clarence Fernandez)