‘Energy’ behind the India-US deal

Donald Trump, the US president, confidently announced that India will buy $500 billion worth of American goods over five years. Well, for the savvy observers, it meant an additional purchase. Indian officials, just to duck it, and Indian media, just to junk it, feel that it implies an annual American export of $100 billion over the next five years. For simplicity’s sake, let us consider the second statement. Going by current levels, $100 billion means that American exports will more than double. Indeed, if Indian exports do not go up, or go up slowly, the existing trade surplus in India’s favour will reverse, or be much lower.

Indeed, this will impact the country’s trade deficit but if Indian exports to other nations and regions, like the European Union and Australia, with which it has signed trade deals, go up, and reciprocating imports remain in control, the US mismatch can be contained. Hence, what we are interested in knowing is what will India buy to double the imports from America, and that too mostly at zero per cent or low duties? According to media reports, ministers, and Indian officials, one of the immediate purchases will be in the energy sector, and include crude, petroproducts, coal, and coke, among other products.

At present, in the first nine months of 2025-26 (April-December 2025), such purchases amounted to nearly $14 billion, as oil shipments rose more than a third compared to the same period in the previous fiscal year. Energy purchases will be boosted as India reduces its reliance on Russian oil, which accounted for $33 billion of imports in the relevant nine months. Logically, if India shifts its entire Russia burden on to the US, and Venezuela, it will add at least $20-25 billion tag to the latter. This is enough to add more than 50 per cent to American exports.

India buys $3 billion or so worth of coal and coke from America. This will increase, and officials contend that the country may substitute Indonesian imports with American ones. In any case, the US coking coal is cheaper, and of better quality, and will reduce import costs, and help the Indian end-users. In addition, there are plans to buy natural gas from the US, which will add to the imports. If things go according to plan, energy imports from the US will be enough to account for the bulk of the increase to help the US to reach the target of $100 billion a year.

Hence, a mere substitution and re-jigging in the oil and energy sources will do most of the trick. India has no choice but to import. After the Russia-Ukraine war, as the Russian oil became cheaper by $10-15 a barrel, India was successfully able to diversify the sources to accommodate more imports from Russia. Now, all that it needs to do is to rework the sources to buy less, or nil, from Russia, and more from the US. The task is easy, and will not change other equations. Many Indian refiners are keen to buy Venezuelan oil as it will be cheaper than the global prices, although the oil is difficult and tough to refine.

Other high-tech products such as chips, semiconductors, airplanes, components, cars, and motorcycles may help reach the $100 billion target. These have three intrinsic issues involved. The first is global availability. For some time now, chips and semiconductors are in low supply, and prices have peaked. One will need to see if the American makers have the capacity to sell to India. The same is true of airplanes, as the major American maker, Boeing, has a huge order backlog. There are indications that India may order $80 billion worth of new planes from Boeing. One will need to see how this will affect, if it does, the Adani Group’s venture with a Brazilian plane supplier.

Second, there will be implications on the Indian manufacturers, including the foreigners who set up factories here, in segments such as cars (high cc), components, and motorcycles (high-end). The same is true for the grand Indian self-reliance plans to make semiconductors locally, with huge investments being announced. Indian policy-makers need to ensure that India does not merely become an assembler of high-tech goods, as is the case now even with the much touted ‘Made-in-India’ iPhones, and was the case for several decades. We need to make-in-India, and not just assemble, or seem to make-it-here.

Third, across supply chains, and across boardrooms, there will be debates about cheaper imports versus local manufacturing. This will be true even in the farm sector, where some fruits, vegetables, and crops may come in directly, and some couched as processed food, and industrial inputs and intermediaries. Even foreign manufacturers, with bases in India, may find it cheaper to import, rather than make. Farmers, whose incomes from horticulture have substituted traditional crop incomes, and which is being touted as a success by the ruling regime, may suffer due to lower demand, and lower prices due to higher imports of the finished products like processed food, and fruit juices.

Of course, as the Commerce Minister Piyush Goyal said at a press conference, the market dynamics will finally decide what India imports, and what India exports. “It is for them (American suppliers and makers) to make an offer that the (Indian) buyers cannot refuse. It is for the Indian importers and US sellers to work out the products where imports will increase. The increase to $100 billion may not happen in the first year, but it will move in that direction,” he said at a press conference that was held largely to dent the worries and concerns.

In essence, Goyal seems to have washed his hands away. According to his logic, India has signed a great deal, as it did with the EU, and safeguarded the most sensitive farm and dairy products. Now, it was up to the industry to work out the details. Some may get hurt in the process, but their percentage will be minimal. Indian industry needs to be ready to fight in the global arena, and cannot hide behind official protection for too long. It is another matter that the farmers seem unhappy, and the local makers seem apprehensive and cagey.

To be fair to Goyal, competition, or some semblance of it, will make Indian industry stronger. There will be opportunities for some segments of the farmers to hike exports, and earn more. There is nothing that is truly win-win, and there is never a free lunch.