Trump's decision comes at a hard time for India's prime minister, Narendra Modi.
While asserting that New Delhi has failed to assure America of "equitable and reasonable" access to its markets, US President Donald Trump has said he intends to end the preferential trade status granted to India and Turkey.
At President Donald Trump's direction, the USA on Monday announced its intention to terminate preferential tariff systems for Turkey and India which are aimed at bolstering the trading prospects of developing nations.
Under the GSP programme, "certain products" can enter the U.S. duty-free if countries meet eligibility criteria including "providing the USA with equitable and reasonable market access".
The move comes as the US and China seek to negotiate an exit from a costly trade war between the two countries that is part of the Trump administration's efforts to address what it views as inequitable commercial relationships with other states.
According to Times of India (ToI), the commerce secretary said: "India exports goods worth $5.6 billion under the GSP and the duty benefit is only $190 million annually".
India is the largest beneficiary of the GSP programme and ending its participation would be the strongest punitive action against India since 2017, when Trump took office.
GSP criteria include, among others, respecting arbitral awards in favor of United States citizens or corporations, combating child labor, respecting internationally recognized worker rights, providing adequate and effective intellectual property protection, and providing the United States with equitable and reasonable market access, stated the USTR.
The decision comes as the United States is reported to be making headway in trade negotiations with China aimed mainly at cutting American trade deficits with a deal expected soon.
Countries can also be graduated from the GSP programme, depending on factors related to economic development.
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In February, India stated enforcing new rules on e-commerce in an attempt to shield domestic traders from foreign-based business giants.
"We don't agree that India is a high-tariff country", Mr Wadhawan said, countering the charge.
Last year India retaliated against U.S. tariff hikes on steel and aluminium by raising import duties on a range of goods.
Commerce Secretary Anup Wadhawan said the withdrawal of the GSP for Indian products would have limited impact.
The announcement that could be seen as a major setback to bilateral trade ties.
"India is a very high-tariff nation".
"Our proposal couldn't be workable for USA as India couldn't have compromised on affordability of medical devices", he said.
Most of the exports were intermediate goods not produced in the United States because they are low in the manufacturing value chain, it added.
India's trade ministry said in a statement that the trade deficit with the United States was falling and in 2018 it is estimated to have narrowed by over $4 billion.