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India considers scrapping import taxes on US ethane, LPG, and LNG to boost trade ties

23 Apr, 2025
India considers scrapping import taxes on US ethane, LPG, and LNG to boost trade ties



India is weighing a proposal to eliminate import taxes on US ethane and liquefied petroleum gas (LPG) as part of ongoing trade negotiations with the United States, in a move that could reshape energy flows and address persistent trade imbalances between the two countries.

The plan, reported by Reuters and confirmed by sources close to the talks, is designed to reduce India’s trade surplus with the US and ease tariff pressures.

The proposal also aligns with India’s broader interest in removing import taxes on US liquefied natural gas (LNG) and increasing energy purchases from American suppliers.

Currently, India imposes a 2.5 per cent import tax on ethane, which is primarily used in petrochemical production, as well as on propane and butane, key components of LPG used for cooking fuel.

In the 2023–24 fiscal year, India imported 18.5 million tonnes of LPG, valued at US$10.4 billion, largely from the Middle East.

India is also the world’s second-largest buyer of US ethane after China, importing 65,000 barrels per day last year.

The US-China trade war has led to higher tariffs on American exports to China, potentially diverting more US ethane and LNG to India.

Reliance Industries, which operates the world’s largest petrochemical complex, remains India’s primary ethane importer.

The proposal comes amid high-stakes negotiations for a new Bilateral Trade Agreement (BTA), part of the broader US-India COMPACT initiative launched earlier this year.

Both sides have finalised the terms of reference for the BTA, aiming to grow bilateral trade to US$500 billion by 2030 and reduce India’s US$45.7 billion trade surplus with the US.

US officials have highlighted the lack of reciprocity in the trade relationship, pressing India to open its markets further and reduce tariff and non-tariff barriers.

India, for its part, has signalled a willingness to cut tariffs on US imports, including energy products, to avoid retaliatory US tariffs that could reach 26 per cent on Indian goods starting in July if no agreement is reached.

India’s steam cracker capacity allows for 9.5 million tonnes of ethylene production, with the ability to process up to two million tonnes of ethane as feedstock.

Prashant Vashisth, vice president at Moody’s affiliate ICRA, noted that importing more LPG is logistically easier for India, which already imports about 60 per cent of its LPG needs.

The Indian government has also accelerated domestic exploration and production, recently awarding 28 new oil and gas blocks across eight sedimentary basins, with a significant portion in previously restricted zones.

A final decision on the proposed duty cuts will rest with India’s Commerce and Finance Ministries, which have yet to comment publicly.

Industry stakeholders and government officials are expected to continue discussions in the coming weeks as both countries push for a comprehensive trade deal that balances economic interests and energy security.

If implemented, the removal of import taxes on US ethane, LPG, and LNG would not only strengthen India-US energy ties but could also set a precedent for future tariff reductions in other sectors as both nations seek to modernise and deepen their trade relationship.

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