Can India and the US strike a trade deal without clashing over agriculture?

India and the United States are racing to conclude an interim trade pact ahead of President Donald Trump’s July 9 deadline but a long-standing hurdle threatens to block progress — agriculture.

Despite nearing consensus on various industrial sectors, disputes around farm goods, including genetically modified crops, dairy imports and ethanol remain reportedly unresolved.

The issue is not merely economic for India; it touches upon food security, rural livelihoods, and political sensitivities, all of which have major implications for the country’s domestic stability.

Why India’s agriculture sector is non-negotiable

Though farming and allied activities contribute a relatively modest portion — around 16 per cent — to India’s GDP, the sector supports nearly half of the country’s population of 1.4 billion.

The farming community represents a dominant political constituency and has historically influenced policy decisions through sustained mobilisations.

In 2021, the Indian government was compelled to withdraw major agricultural reforms following year-long nationwide protests.

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This past resistance still casts a shadow over current trade negotiations, as New Delhi remains wary of sparking fresh unrest by opening up its agricultural sector to foreign competition.

India’s farming structure is notably small-scale. The average size of a farm is just over a hectare, contrasting sharply with American agricultural operations, where the mean farm size exceeds 180 hectares.

In India, most farms are manually operated or use outdated techniques passed down over generations, while US agriculture is highly mechanised and supported by advanced technology, including AI-based monitoring systems and large-scale machinery.

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US agricultural demands vs India’s red lines

A central point of contention is Washington’s push for increased access to the Indian market for a range of American agricultural products.

The US seeks to expand exports of various farm commodities — among them genetically modified (GM) corn and soybeans, wheat, poultry, dairy, rice, ethanol, and a variety of processed foods including canned peaches, frozen French fries, chocolates, cookies and citrus fruits.

While India has indicated some openness to easing tariffs on selected imports such as dry fruits and apples, it has remained firm on rejecting access to GM grains, US dairy products, and ethanol.

Genetically modified crops form a significant part of US agricultural output. However, India does not currently allow the commercial cultivation of GM food crops due to concerns over ecological balance, food safety and the impact on smallholder farmers.

Even as India imports edible oils made from genetically modified crops — such as soy and canola — it restricts GM crop cultivation.

The commercial release of GM mustard, for example, remains on hold due to pending legal proceedings, and a previous attempt to introduce GM brinjal was blocked in 2010.

Nonetheless, some flexibility is being explored. According to Bloomberg, Indian regulators may consider permitting select GM-derived by-products used in animal feed, such as soybean meal or distillers dried grains from corn-based ethanol production.

These items would not directly affect human food chains but would still mark a departure from India’s long-standing GM restrictions.

Why dairy and ethanol are particularly sensitive

India’s dairy sector employs more than 80 million individuals, a figure that includes small-scale farmers, cooperatives, and vendors. The industry is largely unorganised and depends on herds that typically contain two to three animals per household.

In contrast, US dairy farms operate on a vastly different scale, often managing hundreds of cattle with heavy reliance on mechanisation and feed practices that include animal by-products.

This latter point is a major concern in India, where dietary norms and religious sensitivities significantly influence food preferences.

The potential entry of dairy sourced from cows fed with animal remnants has been met with strong resistance from Indian consumers and cooperatives like Amul, which have played a key role in shaping the country’s self-reliant dairy ecosystem.

Similarly, ethanol is another highly sensitive area. India has made substantial progress under its Ethanol Blended Petrol (EBP) initiative, aiming to reduce dependence on imported fossil fuels by blending petrol with domestically produced ethanol.

Most of the ethanol used in India is derived from surplus sugarcane, rice and corn. Allowing the import of US ethanol would not only compromise this strategic energy programme but could also undermine the investments made by Indian distillers and agribusinesses.

What each side is willing to concede

With the deadline for reciprocal tariffs fast approaching, negotiators from both countries are working to close the deal.

Sources indicated that the Indian delegation, led by Special Secretary Rajesh Agarwal, has had to extend its stay in Washington due to ongoing disagreements, particularly over agricultural tariffs.

India has shown willingness to discuss reductions on industrial tariffs and provide access to the US in sectors where the political cost is lower — such as in automobiles, a long-standing American request.

It has also pushed for broader access to US markets for Indian exports from labour-intensive sectors including textiles, leather, jewellery, plastics, and chemicals.

The interim agreement is seen as a stepping-stone towards increasing bilateral trade volumes, with a shared ambition to double total trade to USD 500 billion by 2030 — a goal reiterated by Trump during Prime Minister Narendra Modi’s February visit to the United States.

Trump, speaking about the potential deal earlier this week, said: “I think we are going to have a deal with India. And that is going to be a different kind of a deal. It is going to be a deal where we are able to go in and compete. Right now, India does not accept anybody in. I think India is going to do that, and if they do that, we are going to have a deal for much less tariffs.”

Why India is not backing down

India’s resistance to opening its agricultural market is deeply rooted in structural and strategic realities. The rural economy is vulnerable to global market shocks.

Even modest tariff relaxations could disrupt domestic pricing and erode the safety net provided by public procurement and the Minimum Support Price (MSP) system — pillars that protect farmers from price crashes.

Many experts argue that liberalising agricultural trade too quickly could expose India’s fragmented farming community to the volatility of global commodity markets dominated by large multinational agribusinesses.

These companies often benefit from generous subsidies and economies of scale unavailable to Indian farmers.

Further complicating the negotiations is the demand from US exporters for greater parity. However, India’s current agricultural tariff regime — ranging from zero to 150 per cent — is not exceptional.

The US, too, maintains steep tariffs on specific imports, such as tobacco at over 350 per cent. Thus, criticisms of asymmetry in trade practices may not be entirely justified.

India’s position finds some backing under WTO norms, which allow member nations to protect sensitive sectors for reasons such as food security, rural development, and employment.

Nonetheless, the final decision may come down to political calculus more than legal boundaries.

Farmers and labour unions mount pressure

Opposition to agricultural liberalisation is growing beyond policy circles. On July 3, leaders of the Samyukta Kisan Morcha (SKM) held a press conference in Hyderabad, reaffirming their call for an all-India strike on July 9.

The SKM, in collaboration with trade unions, is staging protests to oppose what it describes as “anti-farmer, anti-labour, and anti-people” policies.

Former Member of Parliament Vadde Sobhanadreeswara Rao voiced strong opposition to including agriculture in any trade agreement with the U.S.

He and other SKM leaders also criticised the government’s delay in enacting legislation to guarantee MSP as a legal right.

The farmers’ coalition has called for a full withdrawal of the National Policy Framework for Agricultural Marketing (NPFAM) and warned of further mobilisations if agriculture is compromised in trade talks.

A way out?

In light of these challenges, a compromise may be possible through selective market access rather than full liberalisation. One such mechanism could involve tariff-rate quotas (TRQs) — a system that allows a limited volume of imports at reduced tariffs, while maintaining higher duties on imports exceeding the quota.

This model was recently adopted in the US-UK mini trade pact announced in May, where agriculture was kept out of contentious discussions.

India may be open to marginally lowering tariffs on select low-risk items such as almonds, walnuts, apples, raisins, olive oil, spirits and wine — products that pose minimal threat to domestic producers.

Such a calibrated approach could allow both sides to claim victory without triggering adverse political fallout in India.

However, the extent of these concessions remains uncertain. A NITI Aayog policy paper has suggested tariff cuts on certain US agricultural products, but it is unclear whether this reflects the official stance of the Indian government or is merely a preliminary recommendation.

Agriculture remains the thorniest issue in the India-US trade negotiations.

With inputs from agencies