On the other hand, imports during the first nine months of 2024-25 grew by 1.91 per cent to USD 33.4 billion, while in December it was up by 9.88 per cent to USD 3.77 billion.

According to experts, going by the trend, the total trade between the two countries will continue to grow in the coming months also.

The bilateral trade during April-December 2024-25 stood at USD 93.4 billion, as against USD 94.6 billion between India and China.

The experts added that the possible trade war between the US and China will give huge export potential for Indian exporters.

The US is the largest trading partner of India from 2021-22. The US accounts for about 18 per cent of India’s total goods exports and over 6 per cent in imports and about 11 per cent in bilateral trade.

Some experts raised concerns that if the US would impose additional duties on certain Indian goods, as threatened by US President Donald Trump, it can impact trade.

In December last year, Trump had said India charges “a lot” of tariffs, reiterating his intention to impose reciprocal tariffs in retaliation for what New Delhi will impose on the import of certain American products.

“India should respond firmly and in equal measure,” economic think tank Global Trade Research Initiative (GTRI) Founder Ajay Srivastava said.

In 2018, when the US taxed Indian steel and aluminium, India retaliated by raising tariffs on 29 US products, recovering equivalent revenue.

Yet, despite India’s leadership in VDA adoption, there are challenges that are hindering the sector’s long-term growth and its potential to drive economic progress. One of the most pressing issues is the outflow of capital due to the current taxation framework. The introduction of a 1% Tax Deducted at Source (TDS) on VDA transactions has, ironically, enticed users to move their trading activities to offshore platforms. Over 90% of VDA trading volume, amounting to INR 600,000 crore, now occurs outside India’s tax jurisdiction, depriving the government of critical tax revenue.

The current taxation model, though, was designed to monitor VDA transactions, it has inadvertently driven traders away from Indian exchanges. High-frequency traders, who are essential for market liquidity, are especially impacted. Without them, India risks stifling market growth and innovation. Furthermore, the hefty 30% capital gains tax, combined with the disallowance of offsetting and carrying forward losses from the sale of VDAs, further discourages them from using compliant Indian platforms. Moreover, users flocking to offshore platforms are exposed to risks such as fraud, lack of investor protection, and diminished market transparency. This double whammy of heavy taxation and losing business is driving down engagement on the Indian platforms, and indirectly promoting non-compliant and dangerous ways of investing.

India’s challenges with crypto taxation are reminiscent of past economic missteps. Historically, high customs duties on gold imports fuelled smuggling, leading to significant tax losses.

Similarly, high taxation on VDAs is driving users towards unregulated foreign platforms, which could ultimately result in revenue loss for the government.

Can India afford to lose out on this growing sector? Is it possible to ensure that domestic exchanges remain competitive while safeguarding investors?

The solution lies in recalibrating the taxation framework and introducing more investor-friendly regulations. A reduction in the TDS rate from 1% to 0.01% could offer immediate relief to the sector, making Indian exchanges more attractive. A reduction in the TDS rate would not only help retain users but also likely increase tax compliance, as more traders would be inclined to

stay within the regulated domestic ecosystem. The government stands to gain by capturing more tax revenue while curbing the outflow of capital.

Additionally, to foster sustained growth, India must look beyond taxation and implement clear, streamlined regulatory frameworks. Licensing systems that ensure consumer protection, facilitate compliance, and promote fair competition are essential. International examples from jurisdictions like Switzerland and Singapore, demonstrate that balanced tax policies, coupled with effective compliance mechanisms, can create an environment conducive to innovation while keeping users within regulated ecosystems. India can refer to these global benchmarks and adopt a framework that not only curtails the migration of users to foreign exchanges but also nurtures a thriving domestic VDA industry.

As we look toward Budget 2025, it is crucial for policymakers to take proactive steps. The VDA industry, if nurtured correctly, has the potential to be a significant driver of economic growth, technological innovation, and financial inclusion.

The budget proposed that the duty on ethernet switches be halved to 10%. The US exported $653.4 million worth of these products to India in FY24. Washington exported $3.09 million of synthetic flavouring essences to India and the duties on them are being cut to 20% from 100%.

US President Donald Trump has accused India of being the “biggest tariff abuser” and “tariff king”.

“The duty cuts will impact imports from all countries equally. The policies are not country-specific,” said an official.

Premium motorcycles by Harley-Davidson, Triumph and Suzuki, among others, are set to get cheaper with the lowering of basic custom duties on such vehicles by 5-20%, a long-standing demand of the US.

Sending Right Signals
“While Trump has often criticised India’s tariff policies, these latest reductions signal a policy shift that could enhance US exports across various sectors. With key tariff cuts on technology, automobiles, industrial inputs, and waste imports, India appears to be taking steps toward facilitating trade even as the global trade environment remains tense,” said Ajay Srivastava, founder, Global Trade Research Initiative. India has also lowered the duty on fish hydrolysate for the manufacture of aquatic feed to 5% from 15%, a move which directly impacts American exports.

Trade watchers also said that the announcement to allow 100% foreign direct investment (FDI) in insurance and a five-year Mission for Cotton Productivity to promote extra-long staple cotton varieties, are reforms to be showcased to the US ahead of Prime Minister Narendra Modi’s meeting with Trump this month.

US agri trade body Cotton Council International had pushed for the removal of the import duty on certain staple cotton. The US is a key supplier of this cotton to India.

“While negotiations for a trade deal will happen later, India is sending the right signals on the reforms front to the US,” said a Delhi-based trade expert.

Another step in that direction is India’s decision to amend Civil Liability for Nuclear Damage Act (CLND Act), 2010, experts said. The move will bring cheer to American companies which are keen on setting up atomic plants in India, they said. The Act has been a sticking point between the two countries.

However, experts said that New Delhi needs to exercise caution when it comes to a limited trade deal because the World Trade Organization mandates that free trade pacts with developed countries must have substantial trade coverage.

“The concept of a mini deal idea is legally flawed. That is why countries clarify that they eliminate or reduce tariffs on above 90% items,” said another trade expert.