The US intends to terminate India’s preferential trade treatment under a scheme which allows certain products from the country to enter the US duty-free.
President Donald Trump said India has failed to assure the US it will provide reasonable access to its markets.
The US will also end preferential trade treatment for Turkey, on the basis that it no longer qualifies for the scheme.
It comes as the US negotiates with China to resolve a damaging trade war.
The US intends to remove India and Turkey for its Generalised System of Preferences (GSP) programme as it argues they longer meet the criteria.
Under the GSP programme, certain products can enter the US duty-free if the beneficiary developing country meets a set of criteria established by congress.
The criteria include providing intellectual property protection, and giving the US reasonable and fair market access.
The decision to remove India was directed by the US president.
The move follows India’s “failure to provide the United States with assurances that it will provide equitable and reasonable access to its markets in numerous sectors,” the US Trade Representative’s (USTR) office said in a statement.
The USTR said it was ending preferential treatment for Turkey because “it is sufficiently economically developed” and should no longer benefit from the GSP programme.
The changes may not take effect until at least 60 days after the notifications to US congress and the governments of India and Turkey.
Mr Trump, who has pledged to reduce US trade deficits, has called out India for its high tariffs.
Last year India retaliated against US tariff hikes on steel and aluminium by raising import duties on a range of goods.