Indo-US trade: Changing dynamics | Photo Credit: wildpixel

US Secretary of State Marco Rubio recently wrapped up a four-day diplomatic visit to India on May 26, 2026. A key focus was strengthening energy security cooperation and stabilising bilateral ties amid trade and regional frictions.

Trade within a trusted partner network A major highlight was India and the US signing a dedicated pact on critical minerals and rare earths. The agreement focuses on securing supply chains for semiconductors, electric vehicles (EVs), defence systems, and clean energy technologies.

For the US, it brings India into a trusted partner network designed to reduce Chinese dominance. For India, which has limited processing capacity and depends on China for many rare earths, it opens alternative sources, processing partnerships, and technology collaboration. This builds on the broader US-India Bilateral Trade Agreement (BTA) framework signed in February 2025, under which India committed to purchasing $500 billion worth of American goods over the next five years, a commitment Rubio’s visit reinforced.

For a country that has long enjoyed a healthy trade surplus with the US, this marks a shift. India-US bilateral trade crossed $140 billion (₹12 lakh crore) in FY2025–26. While Indian exports grew by just 0.93 per cent (down sharply from 11.6 per cent growth in FY2024–25) to about $87.3 billion (₹7.7 lakh crore), imports jumped by 17.2 per cent to $53.5 billion (₹4.7 lakh crore). India still exports more than it imports, but the gap is narrowing and the composition of that trade is changing.

Diversifying into the US

The clearest shift is energy. India is diversifying away from heavy dependence on West Asia and discounted Russian oil, both of which carry geopolitical risks from the Russia-Ukraine war and the recurring tensions around the Strait of Hormuz. The United States is emerging as a key alternative supplier.

Indian state-run refiners recently signed the country’s first structured long-term liquefied petroleum gas (LPG) import agreement with US suppliers. Under the deal, India will import around 2.2 million tonnes of LPG from the US in 2026, equivalent to roughly 10% of India’s annual LPG imports.

Crude oil and liquefied natural gas (LNG) tell a similar story. India’s crude oil imports from the US jumped by about 50 per cent in a single year, rising from USD6.6 billion (INR55,367 crore) in FY2024–25 to $9.9 billion (₹86,530 crore) in FY2025–26. Similarly, LNG imports nearly doubled from $1.41 billion (₹11,709 crore) in FY2023–24 to $2.46 billion (₹20,730 crore) in FY2024–25. This signals that India is edging away from a surplus-heavy export relationship towards a more strategically balanced trade structure.

India has also expanded its manufacturing ambitions through schemes such as the production-linked incentive (PLI), positioning itself as an alternative base for companies diversifying beyond China. However, this approach has faced setbacks, including protectionist measures from the US, tariff escalation, and rollbacks of the Inflation Reduction Act. In 2025, effective tariffs on Indian goods briefly surged to 50 per cent, before being negotiated down to 18 per cent in early 2026, reportedly linked to India reducing Russian oil purchases and expanding US imports. A new 10 per cent across-the-board tariff still leaves the trade environment uncertain.

Export-led growth tied to a single market now looks riskier. Instead, India is trying to embed itself deeper within trusted supply chains. This shift is now visible in new frameworks and deals. Initiatives like the TRUST Initiative, FORGE, and Pax Silica aim to integrate India into US-aligned technology ecosystems. The Quad has committed roughly $20 billion toward critical mineral supply chains across the Indo-Pacific.

A strategic shift with its own trade-offs

The risks

This marks a deeper strategic shift in the India-US relationship from traditional trade to co-building upstream control over key materials and technologies required in high-growth sectors. But this strategy carries trade-offs. As India increases imports of US oil, gas, technology, and industrial goods, it also becomes more exposed to US policy shifts, tariff changes, and geopolitical priorities.

That is the paradox of the moment. India is buying more from the US to reduce vulnerability and secure critical resources and technologies, yet in doing so it ties its economic future more closely to a US-centred system.

Whether this delivers greater strategic autonomy or a new form of dependence will hinge on how India balances diversification with domestic capacity-building over the coming decade.

Garg is Director - South Asia; Michael is Lead Energy Specialist, India Clean Energy Transition - South Asia, at Institute for Energy Economics and Financial Analysis

Published on June 11, 2026