India-US trade deal will be big shot in the arm: Arvind Panagariya

New York: The proposed India-US trade agreement will be a big shot in the arm and make India a very attractive location for investors and result in a lot of liberalisation by the country, Chairman of the 16th Finance Commission Arvind Panagariya has said.

“A lot of the current things that are underway are very exciting," Panagariya said during an interaction hosted at the Consulate General of India in New York this week.

"In particular, I want to mention the US-India trade agreement that is being negotiated. Also, the India-European Union agreement,” the eminent economist said.

He said that the India-US trade agreement will be a “big shot in the arm”.

Once the India-US trade deal happens, the one with the European Union will also happen and “that door will open very conveniently,” he said.

With these two trade deals, "India will have an open market with the European Union, with the United States. These are the two largest markets. For any future investor, that makes India a very attractive location because effectively, the friction that is there on the border will melt away, and that is going to be an absolute game changer,” Panagariya said.

In response to a question by PTI on the India-US trade deal and tariffs, Panagariya said that “as far India is concerned, potentially, I see a lot of good might come out of it, because when the agreement has to be signed with the United States, India will also be lowering its tariffs.”

“This is a tremendous opportunity for India, and it is very seriously negotiating the agreement with the United States. So I'm sort of hoping to hear the good news," he said.

"The most important thing is that this will result in a lot of liberalisation by India itself, and that, I think, is a very large part of the story. Of course, better access to the US market relative to its other competitors is a big plus also,” Panagariya said.

Panagariya, an eminent Columbia University professor and former Vice Chairman of NITI Aayog, also noted that from President Donald Trump to Commerce Secretary Howard Lutnick, and Treasury Secretary Scott Bessent have voiced optimism that an India-US trade agreement is almost imminent. 

Trump has stated on various occasions that the trade deal with India will happen soon, commenting as recently as last week that “We're very close to a deal with India, where they open it up.”

Trump has set 1 August as the deadline for several countries, including India, to sign a trade deal or face steep tariffs.

Last month, Lutnick had said that one should expect a trade deal between India and the US in the not-too-distant future and that he is “very optimistic.”   

The US' total goods trade with India is estimated at USD 129.2 billion in 2024. US goods exports to India in 2024 were USD 41.8 billion, up 3.4 per cent (USD 1.4 billion) from 2023. US goods imports from India totalled USD 87.4 billion in 2024, up 4.5 per cent (USD 3.7 billion) from 2023. The US goods trade deficit with India was USD 45.7 billion in 2024.

Prime Minister Narendra Modi and President Trump have set a new goal for bilateral trade, ‘Mission 500’, aiming to more than double total bilateral trade to USD 500 billion by 2030.

Negotiations between India and the US are underway to iron out pending issues for the trade deal. Commerce Minister Piyush Goyal reportedly said in London that Delhi is making "fantastic progress" in trade talks with Washington.

Prime Minister Modi has also said that India is working on finalising a “mutually beneficial” trade agreement with the EU by the end of this year.

Panagariya also elaborated on the ‘Viksit Bharat’ vision for India that envisages the country as a developed economy by 2047.

He noted that in real dollar terms, India’s GDP during 2003-2017 grew at 10 per cent and at about 7.8 per cent annually up till 2024.

“If we can continue to do even what we have done actually over the last about 20 plus years, starting in 2003, we can get there”, being able to grow at about 7.8 per cent. And there are reasons actually that we can on the whole probably do even better in the next 23-24 years,” he said.

 India’s current per-capita GNI (Gross National Income) in 2024-25 is USD 2,740, while the World Bank threshold per-capita GNI to achieve high-income country status is USD 13,995.

The annual compound growth in constant dollars in per-capita GNI required to cross the World Bank threshold from this level is 7.3 per cent. With the population growth rate of 0.6 per cent, this per-capita GNI growth requires a GNI growth rate of 7.9 per cent, he said.

India, the fifth largest economy in the world, has a GDP of USD 3.91 trillion in 2024-25, behind the fourth largest economy, Japan, which has a GDP of 4.19 trillion and Germany, the third largest with a GDP of USD 4.66 trillion.

With India’s growth in current dollars at 8-10 per cent, Panagariya said it is almost certain that India will surpass the GDPs of both Japan and Germany within three years and therefore, by the end of 2027, will become the third largest economy.

Highlighting factors that put India in a favourable position to achieve the 2047 goal, Panagariya pointed to the very large gap between India’s per-capita GDP (USD 2,780) as compared to South Korea (USD 33,120), Singapore (USD 84,730), the US (USD 82,770) and Germany (USD 53,340).   

This gap indicates that there is a large scope for catch-up for India, he said.

In addition to this, India’s large population will lead to scale economies in the provision of public goods, especially digital infrastructure and its young population will lead to a high worker/population ratio and high savings rate. 

Other key factors include a great momentum in both physical and digital infrastructure development, with road, railway and civil aviation infrastructure being built at breakneck speed and India’s digital public infrastructure digitising public and private transactions faster than in most countries, he said.

Noting the considerable scope for economic reforms, Panagariya referred to the implementation of new labour codes and much greater awareness among the states of the importance of urbanisation.   

On the challenges in the journey ahead, Panagariya emphasised that the transition out of the rural agricultural economy into industrial and services is the biggest challenge for India. “Therefore, the creation of well-paid jobs in industry and services is the biggest challenge,” he said.