US President Donald Trump plans to end preferential trade treatment for India.
With this, India will lost its advantage of duty-free entry for $5.6 billion worth of the country's exports to the United States. Experts say that India's exports of farm, marine and handicraft products to the United States could be hit.
"We fear that our labour-intensive exports of agriculture, marine and handicraft products to the US would be hit hard," Ajay Sahai, director general of the Federation of Indian Export Organisations, told Reuters.
Top trade official Anup Wadhawan said that the two countries had been working on a trade package to address each other's concerns.
"I am taking this step because, after intensive engagement between the United States and the government of India, I have determined that India has not assured the United States that it will provide equitable and reasonable access to the markets of India," Trump said in a letter to congressional leaders.
Trade ties with the United States were hurt after India unveiled new rules on e-commerce limiting the way internet retail giants Amazon.com Inc and Walmart Inc-backed Flipkart do business.
The e-commerce rules followed a drive by New Delhi to force global card payments companies such as Mastercard Inc and Visa Inc to move their data to India and higher tariffs on electronic products and smartphones.
"India has implemented a wide array of trade barriers that create serious negative effects on United States commerce," the USTR said.