India’s Strategic Autonomy and the New US Trade Deal

• The February 2, 2026, US-India trade agreement includes a commitment to stop purchasing Russian oil and a US$500 billion purchase and investment pledge.
• The deal represents a macroeconomic adjustment under immediate financial and political constraints rather than a fundamental shift in strategic ideology.

Capital Account Pressures

• Net foreign direct investment (FDI) plummeted throughout 2025, falling by over 96% to roughly US$353 million annually as investors reassessed risk.
• Policymakers needed a strong signal to stabilize capital markets against concerns over geopolitical alignment and potential sanctions exposure.

Export and Employment Risks

• While capital-intensive sectors like electronics grew, labor-intensive sectors faced significant contraction—specifically gems and jewellery (-40%) and textiles (-22%).
• US tariff threats of 25% to 50% created acute employment risks within these sectors, necessitating the tariff relief secured through the US deal.
• India sacrificed its energy flexibility by moving away from discounted Russian crude to protect domestic export-related employment.

Strategic Implications

• The agreement prioritizes immediate financial reassurance over long-term energy security, leading to potential imported inflation.
• Diversification of export markets remains a long-term goal, but its slow progress could not mitigate the immediate urgency of the 2025 financial crisis.
• The deal manages current vulnerabilities by committing future policy space, meaning its success depends on how effectively the government utilizes the time gained before the next economic constraint arises.