The India-US trade deal exempts Indian dairy and "sensitive" agriculture items from its ambit, provides for zero-duty access to over $40 billion worth of Indian goods, and reduces customs duties on labour-intensive Indian merchandise such as textiles, leather goods, marine products, chemicals, and certain agricultural items, including processed food, to 18% from day-one, people aware of the development.

Elaborating upon the basic contours of the deal announced by President Donald Trump, the people cited above said the 25% punitive tariff imposed on Indian goods for purchasing Russian oil will be removed in a couple of days. Besides, the 25% reciprocal tariff imposed on goods worth about $30 billion (labour-intensive items) will become 18% days after the deal is formalized through a joint statement, they added, requesting anonymity.

"Indian exporters were struggling to survive in their biggest market against the cheaper labour-intensive products of competing countries such as Bangladesh, Cambodia, Vietnam, Indonesia, China, Malaysia and Thailand because of the huge duty differential. They paid around 19%-20% against Indian exporters being charged 50%. Now, after the deal, Indian exporters will have about 1-2 percentage point duty advantage", one of them said.

Competing countries have higher import duties in the US market. For instance Vietnam is 20%, Malaysia 19%, Bangladesh 20%, Cambodia 19% and Thailand 19%. Union commerce and industry minister Piyush Goyal said in New Delhi that the sensitive agriculture and dairy sectors were safeguarded in a deal that will boost labour-intensive and export-oriented sectors. "This is truly a deal that every Indian can be proud of", he added.

The developments came a day after Prime Minister Narendra Modi announced that Indian goods will face a reduced US tariff of 18% after a phone conversation with Trump, who said the two sides had concluded a trade deal whereby New Delhi will cut its tariffs to zero and buy American goods, including energy, worth more than $500 billion. The announcement concluded nearly 12 months of tense negotiations that saw bilateral ties nosedive. India’s labour-intensive sectors were the worst hit by the US tariffs that were the highest (50%) among competing countries. The sectors mainly comprised textiles and apparels, leather and footwear, marine products, chemicals, plastic, rubber, home decor, carpets, machinery, certain agri items, and processed agriculture products.