India Opens $50 Billion in Government Contracts to US Firms in Strategic Trade Shift

In a landmark policy shift, India has agreed to open approximately $50 billion of its annual government procurement market to US firms, marking a significant step in bilateral trade relations and economic liberalization. The decision, announced amid ongoing trade negotiations between New Delhi and Washington, signals India’s willingness to recalibrate its historically protectionist procurement policies in favor of reciprocal global partnerships. This move follows a similar agreement with the United Kingdom earlier this month and reflects India’s broader strategy to integrate into international supply chains while safeguarding domestic industries.

Phased Access and Reciprocal Benefits

Under the proposed terms, US companies will gain access to central government contracts valued at over $50 billion annually, covering goods, services, and construction projects. The agreement excludes state and local government procurements, ensuring that smaller domestic firms, particularly micro, small, and medium enterprises (MSMEs), retain priority access to the remaining $650–$700 billion of India’s annual public procurement market. Crucially, the arrangement is reciprocal, enabling Indian businesses to bid for US federal contracts—a provision that could unlock new opportunities for sectors like IT, pharmaceuticals, and engineering.

The phased rollout begins with non-sensitive federal projects, aligning with India’s recent trade pact with the UK, which granted British firms access to Indian tenders above ₹2 billion ($23.26 million) in exchange for non-discriminatory treatment of Indian suppliers in Britain. Anil Bhardwaj, Secretary General of the Federation of Indian Micro, Small and Medium Enterprises (FISME), emphasized that domestic industries have been assured of continued protections: “Twenty-five percent of orders will remain reserved for MSMEs, and reciprocal access allows our firms to compete abroad”.

Context and Strategic Implications

India’s public procurement market, estimated at $700–$750 billion annually, has long been shielded from foreign competition to nurture local industries. The country has resisted joining the World Trade Organization’s Government Procurement Agreement (GPA), citing the need to protect its MSMEs, which employ over 110 million people. However, mounting pressure from trade partners and the pursuit of broader economic integration have prompted a reevaluation.

The shift aligns with India’s ambition to more than double bilateral trade with the US to $500 billion by 2030. Recent meetings between Indian Commerce Minister Piyush Goyal and US Commerce Secretary Howard Lutnick in Washington underscored the urgency of finalizing an interim trade pact by July 8, ahead of a 90-day suspension on reciprocal tariffs imposed by the US in April. While the US seeks greater access for its agricultural and manufactured goods, India is negotiating duty concessions for labor-intensive sectors like textiles, gems, and leather goods.

Sector-Specific Considerations and Safeguards

Sensitive sectors such as defense and railways will remain largely protected, though foreign procurement is permitted when domestic alternatives are unavailable. For instance, India’s defense offset policy—which mandates that 30% of contract values be reinvested locally—remains intact, posing challenges for foreign manufacturers. Similarly, the Government e-Marketplace (GeM), India’s centralized procurement platform, is being adapted to accommodate global bidders while maintaining safeguards for domestic players.

The US has historically criticized India’s fragmented procurement policies, citing “changing rules and limited opportunities” in its 2025 National Trade Estimate Report. By contrast, the new framework offers predictability: US firms can bid on federal projects in non-sensitive sectors, while India gains leverage to address its $41.18 billion trade surplus with the US, a point of contention in bilateral talks.

Industry Reactions and Future Outlook

Indian industry leaders have cautiously welcomed the move. Mihir Kumar, CEO of the Government e-Marketplace, noted that the platform’s expansion to global bidders will enhance transparency and competition. However, concerns persist about the potential displacement of small businesses. “The key lies in ensuring reciprocity—if Indian firms gain genuine access to US markets, this could be transformative,” said Bhardwaj.

For the US, the deal represents a strategic win. Access to India’s vast procurement market could offset losses from trade tensions with China and bolster sectors like renewable energy and infrastructure. The agreement also sets a precedent for future pacts with other nations, as India considers extending similar terms to Australia and the UAE.

Next Steps in US-India Trade Relations

With negotiations intensifying, both nations aim to finalize an interim agreement by early July, ahead of the US presidential election cycle. Key unresolved issues include tariff reductions on American agricultural imports and India’s demand for exemptions from the 26% reciprocal tariff on its goods. Success hinges on balancing concessions: India seeks to protect its farmers from genetically modified (GM) crops, while the US pushes for greater market access.

As Prime Minister Narendra Modi’s administration navigates these complexities, the procurement pact underscores India’s evolving economic strategy—one that prioritizes global integration without sacrificing domestic priorities. If implemented effectively, this calibrated openness could redefine India’s role in global trade, fostering innovation and competitiveness across industries.