New US report flags ‘Make in India’, other Indian policies as trade barriers

New Delhi: The US has once again raised objections to India’s trade policies, including key initiatives meant to support local manufacturing, casting a shadow on ongoing negotiations between the two nations for a bilateral trade agreement.

The 2025 National Trade Estimate report, published by the US Trade Representative, has flagged several trade barriers, including high tariffs, digital restrictions, and other policy decisions, urging India to make changes.

The report, which covers 59 countries including Australia, Canada, the European Union, the UK, and Japan, comes at a crucial time as New Delhi and Washington continue discussions on a bilateral trade agreement.

A US delegation led by assistant US trade representative Brendan Lynch concluded their in-person talks in India last week, and the negotiations are set to resume virtually in the coming weeks.

The bilateral trade agreement is crucial for India, especially with US President Donald Trump’s proposed reciprocal tariff policy set to kick in from 2 April.

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One of the key concerns for the US remains India’s high import duties, particularly on agricultural products. The USTR report points to India’s tariffs of 150% on alcoholic beverages and 100% on walnuts and raisins, which Washington argues make it difficult for US goods to compete in the Indian market.

The USTR also flagged India’s restrictive non-tariff barriers, including import bans and licensing requirements for certain products. It also criticised India’s rules on animal-based oils, restrictions on refurbished medical devices, and import approvals for some medicines, arguing that these create unnecessary trade hurdles.

India’s customs procedures also drew scrutiny in the report, with the US raising concerns over sudden tariff changes, lack of prior notice, and inconsistent implementation across different regions. The US report has suggested India simplify its tariff notification system to improve clarity for businesses.

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Under attack: ‘Make in India’, defense offset, and data localisation

The US Trade Representative has criticized India’s ‘Make in India’ policy, which reserves contracts for domestic suppliers. While the US claims these exclusions disadvantage foreign firms, for India, the policy is a crucial tool for encouraging and supporting local manufacturing and job creation.

Similarly, India’s defense offset policy—which requires foreign defense contractors to invest at least 30% locally—has been deemed burdensome for US exporters. For India, the policy is necessary for technology transfer and defense self-reliance.

On digital trade, the US has expressed concerns over India’s data localisation requirements, which mandate that payment service providers store Indian data domestically.

While the US views these rules as restrictive, India argues these are necessary for national security and data sovereignty. The US wants fewer restrictions in the digital sector to enable free flow of data, which would benefit major American tech firms.

Another issue flagged in the US report is India’s quality control orders, including on polyethylene introduced in January 2024. The US contends this does not align with international standards and disrupts trade in plastics and chemicals, while India insists the policy helps prevent low-quality imports.

"India is not doing anything different from other developed nations. The quality control orders are meant to ensure the availability of quality products, and every country implements such measures to protect consumer rights," said an Indian government official on condition of anonymity.

Also read | India seeks easier export rules as US pushes for lower tariffs

The US report also raised concerns about India’s IT Rules 2021, which it said imposed stringent requirements on digital platforms, including taking down content deemed unlawful.

Such measures could restrict free speech and make compliance difficult for American tech firms, the report said, although India sees these as essential to combat misinformation and harmful content online.

The US report also criticized India’s regulatory environment, highlighting the lack of consultation with stakeholders before issuing new trade policies, citing New Delhi’s decision to introduce import licensing rules for laptops in 2023. The US argued that such unpredictable policymaking disrupts businesses.

The spokesperson for the commerce ministry did not immediately reply to Mint’s queries.

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India’s domestic policies under scrutiny

The US Trade Representative has also taken issue with India’s agricultural subsidies, particularly the minimum support price (MSP) programme, which ensures a degree of financial security for farmers growing staple crops such as wheat and rice.

The US argues that these subsidies distort global markets and disadvantage American farmers, while India views these as vital for ensuring food security and supporting millions of small farmers.

India’s strict approach to genetically modified food has also attracted criticism. The US Trade Representative has argued in the report that India’s approval process lacks transparency and was not science-based, delaying US biotech exports to India.

However, India remains cautious in this matter because of public opposition to GM foods and environmental concerns. Major markets like the European Union follow similar restrictions, and any shift in policy could impact India’s agricultural exports.

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The US report also highlighted India’s stringent requirements for dairy imports, such as a rule requiring that imported dairy products come from animals that have not been fed meat, blood, or internal organs.

Intellectual property (IP) rights remain another sticking point. The US has long criticized India’s patent laws, particularly Section 3(d) of the Patents Act, which prevents "evergreening" of pharmaceutical patents. While the US sees this as a barrier to innovation, India defends it as a measure to ensure affordable medicines for its population.

While the US report reiterates many past concerns, some issues have been resolved or become less relevant. For instance, India recently abolished its 6% equalization levy on online advertising, also known as Google tax, a move acknowledged in the USTR’s assessment.

The US report also pointed to India’s retaliatory tariffs on items such as almonds and apples, imposed after the US withdrew India’s benefits under the Generalized System of Preferences. However, this issue too has been resolved with India removing those tariffs.

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