India is steering clear of retaliatory tariffs against the United States despite the Trump administration’s decision to impose a 26% duty on Indian exports, a move that rattled global financial markets and sent the Sensex tumbling by 1.6% since Wednesday. Instead, New Delhi is doubling down on efforts to finalize the long-pending Bilateral Trade Agreement (BTA) with Washington, a senior government official told Reuters.

The Indian government is optimistic due to a key provision in Trump’s recent executive order, which allows leniency for countries taking “significant steps” toward addressing imbalanced trade relationships. This clause is central to India’s strategy to avoid further escalation.

An official familiar with the matter said India feels reassured as it was among the first countries to initiate discussions for a trade pact with the US. Meanwhile, several Asian economies are facing harsher consequences—China has already announced reciprocal 34% tariffs, Indonesia has chosen not to retaliate, and Vietnam has agreed to eliminate tariffs under a new deal in progress.

Despite Trump’s tariff order—issued while praising Prime Minister Narendra Modi as a “great friend”—India has chosen a restrained and strategic response. The silver lining for India is the exemption of critical export categories like semiconductors, copper, and pharmaceuticals. India remains a top supplier of generic drugs to the US, offering some protection to the pharma sector. However, industries like electronics, auto components, and gems and jewellery are likely to suffer under the new tariff regime.

Back home, the government is facing political backlash. Opposition leader Rahul Gandhi criticized the administration’s failure to secure relief, warning that the tariffs could “completely devastate” India’s economy despite the apparent warmth in India-US relations.

Progress on the trade front has been promising. Last month, India and the US agreed on the framework for the BTA. In goodwill gestures, India has lowered import duties on Harley-Davidson motorcycles and bourbon whisky, and scrapped the controversial ‘Google Tax’ that previously affected American tech companies.

India now finds itself in a delicate balancing act—protecting its economic interests while preserving a crucial diplomatic relationship.