India weighs duty-free US cotton, limited farm quotas as trade tensions flare

As diplomatic chill sets in between New Delhi and Washington over tariffs tied to Russian oil imports, India is now weighing sensitive concessions to keep its trade dialogue with the United States on track — including duty-free access for American cotton and limited quotas for select agricultural imports.

Industry stakeholders have informally proposed that India consider such trade-offs ahead of a crucial round of negotiations later this month, when a US delegation is expected to arrive in New Delhi, according to sources. The recommendations come even as domestic sentiment cools on the deal amid escalating tensions with Washington.

Commerce Minister Piyush Goyal earlier this month sought feedback from key industry leaders on ways to make the deal more appealing to the US. One prominent proposal includes allowing duty-free imports of US cotton — a move that could ease supply constraints in India’s shrinking cotton output and simultaneously support the country’s export-led textile sector, which relies heavily on the American market.

Bangladesh, a direct competitor, has already extended similar cotton concessions to the US under its trade agreement. The American market currently absorbs close to 30% of India’s apparel exports.

A senior government official confirmed that India is also open to limited quotas for select US agricultural items, though genetically modified (GM) products remain off the table. Only one GM crop — Bt cotton — is currently approved for cultivation in India, and there is significant resistance to any expansion of GM agriculture, particularly in food crops.

Meanwhile, the Indian export industry is seeking urgent relief amid uncertainty. Following the US decision to impose additional tariffs — which some fear could reach 50% — exporters are calling for a broader rollout of support schemes like the Remission of Duties and Taxes on Exported Products (RoDTEP) and the Interest Subvention Scheme (ISS) to cushion Micro, Small and Medium Enterprises (MSMEs).

An exporter, requesting anonymity, revealed that while major American brands haven't canceled orders, they are pressing pause, pending the outcome of the upcoming negotiations. “They’ve asked for three weeks to respond. So until the US team arrives on August 25, we’re in limbo,” the exporter said. “Some sectors like pharma can handle the pressure, but textiles and footwear are already operating on razor-thin margins.”

Another exporter warned that if a 50% duty is fully enforced, India risks losing competitive edge to rivals like China, Vietnam, and Bangladesh — particularly in low-margin segments. In the gems and jewellery sector, industry leaders are urging the government to extend pandemic-era support, citing continued disruptions in rough diamond imports and fears of losing market share in the US.

The government has already launched a sector-wide review to identify concessions it can still offer. Key economic ministries have been tasked with evaluating trade-offs that might revive talks and preserve India’s US export market.

Despite the friction, India has been ramping up energy ties with the US. In the first four months of 2025 alone, US crude oil exports to India soared over 270% year-on-year — from 1.69 million tonnes last year to 6.31 million tonnes this year, according to official data from the Directorate General of Commercial Intelligence and Statistics (DGCIS).

As trade talks near, New Delhi faces a tight balancing act — protecting its domestic industries while navigating a rapidly shifting geopolitical and economic landscape.