Why One Basis Point Matters More Than The US India Trade Deal

The US–India trade agreement on goods is a meaningful milestone. But the more consequential phase now begins elsewhere: trade in financial services — effectively, trade in capital.

India is entering a multi-year investment super-cycle. Financing it will not hinge on tariffs or bilateral quotas, but on whether global capital increasingly chooses India over other markets. That decision is driven by capital-market design: how easy it is to enter and exit, how long-dated capital is taxed, how predictable regulation is, and how deeply India is embedded in global equity and bond indices.

This piece argues that India’s next growth acceleration will come not from manufacturing incentives alone, but from deliberate reforms that make Indian equities and bonds structurally unavoidable for global asset allocators — higher index weights, simpler portfolio flows, and a regime that rewards patient, flexible capital.

In short: the real trade deal India needs next is not with another country, but with global

capital itself.

Comparison: US India Goods Trade vs 1bp Index Inclusion

1) US India Trade Deal (Goods)

Total two-way US–India goods trade today is ~$190–200bn annually (recent 12-month run-rate).

The estimated incremental impact of a successful goods deal (tariff reductions, quota relaxations, sectoral access) is typically +5–10% over 2–3 years for comparable bilateral agreements.

• Incremental trade value: $10–20bn per year

• Gross trade value, not net capital

• Distributed across exporters, importers, logistics, and consumers

• Largely flow-based, resets every year

Economic quality of inflow

• Low capital durability

• No balance-sheet permanence

• Limited effect on cost of capital or domestic asset prices

2) One Basis Point Increase in Global Index Weight

Global equity + bond indices tracked by MSCI, FTSE Russell, and S&P anchor >$20 trillion of passive and benchmark-constrained capital.

(Conservative consensus range used by CIOs and index strategists.)

• 1 basis point = 0.01%

• 0.01% × $20 trillion = $20 billion

Result:

A 1 bp increase in India’s index weight ⇒ ~$20bn of inflows

Economic quality of inflow

• Balance-sheet capital, not trade flow

• Long-dated, sticky, benchmark-anchored

• Low churn, low reversal risk

• Directly compresses India’s equity risk premium and sovereign cost of capital

Side-by-Side Summary

Gross annual impact	$10–20bn	~$20bn
Nature	Trade flow	Capital inflow
Durability	Annual, resets	Multi-year, sticky
Balance sheet effect	None	Yes
Cost of capital impact	Minimal	Material
Execution complexity	High (negotiated)	Moderate (policy + market design)

The Real Asymmetry

A single basis point shift in global index inclusion delivers comparable or greater economic value than a major bilateral goods trade deal — with higher durability, lower volatility, and far stronger second-order effects on investment, valuation multiples, and growth financing.

This is why the next frontier of India’s trade strategy is not ports or tariffs —it is capital-market architecture.

Disclaimer: In the article "Why One Basis Point Matters More Than The US India Trade Deal" above - Any views, comments or communication (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.