Indo US BTA: A strategic crossroad for services sector of both economies
In 2024, the U.S.-India trade relationship reached $191 billion, underscoring the growing interdependence between the world's largest and fifth-largest economies. At the heart of this relationship lies a deepening trade in services, especially in IT and professional services.
Yet, as both nations work towards a Bilateral Trade Agreement (BTA), the path forward is strewn with strategic opportunities and emerging policy challenges.
Synergies in Digital Services between India and USA
by Taboola
by Taboola
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India's total services exports rose by 13.6% to $387.5 billion in FY 2024-25, out of which, exports to the U.S. reached $33.2 billion; led by IT-enabled services ($20 billion), professional services ($10 billion), and BFSI (banking, financial services, and insurance) exports ($2 billion). Conversely, the U.S. exported $25.9 billion in services to India with a surplus of $102 million, primarily from exports in finance and consulting.
The digital services sector in particular reflects a symbiotic relationship between the two countries. India today is the third largest start-up hub and one of the leading countries in global SaaS businesses. There is a deep organic relation between Indian and US tech businesses, with 60% of total investments in Indian start-ups in 2020 coming from US investors. Overall, US investors were part of 75% of the deals, followed by Singapore based investors (15%) and Japanese investors (10%). Moreover, major global US tech businesses like Alphabet and Meta have increased their presence in India, making it their second base (or base for their Asia operations) for much of their product development and marketing activities.
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Friction Points: Tariffs, Taxes, and Technological Tensions
Unfortunately, it has not been smooth sailing for the BTA as2025 has brought fresh headwinds. In April, the U.S. introduced a reciprocal 26% tariff aimed at select sectors—primarily tech and electronics. India's recent decision to remove its 6% equalization levy (digital services tax) was seen as a conciliatory gesture in support of the BTA process, but teething problems still remain.
For instance, fundamental differences in data protection frameworks—India's more state-centered model vs. the U.S.' consumer and market-driven approach— are roadblocks.Reportedly, bilateral e-commerce trade reached $15 billion in 2024, but DPDPA compliance costs $500 million yearly for IT exporters. Alignment could boost trade by 15% ($2.25 billion) by 2030.
Visa policy is another sore point. Current visa caps cost $800 million in losses and BFSI exports face U.S. regulatory barriers. A WTO study suggests negotiating a 20% increase in
H-1B visa quotas
could grow India's $10 billion Mode 4 exports by $5 billion, while reciprocal BFSI market access could triple India's $2 billion BFSI exports by 2030.
Addressing the dragon in the room
Much of these hurdles exist because historically India and USA have often perceived each other as competitors in digital technology and services. However, the BTA finds utility when both countries face a bigger challenge in the form of China.
The National Strategy for Critical and Emerging Technologies (2020) by USA recognises China as a major threat in the field of technology. The US is actively seeking to de-couple from China on all fronts; from manufacturing to new technologies.
Much of the initial phase of the Indian tech start-up ecosystem was developed by investments from Chinese sources such as Alibaba, Tencent or Didi Chuxing. However, over time there has been a conscious shift by the Indian Government to decouple from Chinese influence which also involved banning certain Chinese service providers.
Chinese technology firms are aggressively expanding into Latin America and Africa, offering bundled solutions, low-cost hardware, and subsidized services. China is also fast emerging as a major tech innovator in the new-age technologies such as AI. These developments threaten business interests of both India and USA.
India and USA signed a critical treaty under the previous US Administration in the form of United States–India Initiative on Critical and Emerging Technologies (iCET), that sought to leverage complementarities between the two countries in the fields of AI, quantum computing, semiconductors and wireless telecommunications. This initiative, which is critical for both countries to counter the Chinese developments, now needs to be fostered by a BTA that helps realise the stated objectives.
Fresh Perspective for the BTA: from competitors to allies
The Indo US BTA between the global leaders in the services is no more about turf war between competitors. It is now more about geofencing out the competition from China. Businesses are presently more allied to the idea (as is evident from the degrees of integration); the authorities need to foster it.
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