Tuesday 13 / May / 2025
New Delhi: In May 2025, India and the United Kingdom concluded negotiations on a comprehensive Free Trade Agreement (FTA), marking a significant milestone in their bilateral relations.
This agreement, finalized after three years of rigorous discussions and twelve rounds of formal negotiations, represents one of the most ambitious trade deals for both countries in recent years. It aims to eliminate tariffs on 99% of Indian exports to the UK and reduce tariffs on 90% of UK goods exported to India, with most becoming tariff-free within a decade.
This FTA is not just a strategic economic pact but also a testament to the growing mutual trust and alignment of interests between the two countries. It reflects a shared commitment to deepening trade, strengthening economic cooperation, and fostering a dynamic and inclusive global trade environment. As two of the world’s major democracies and service-oriented economies, India and the UK are setting the stage for a transformative era in bilateral relations. The agreement is expected to significantly enhance the ease of doing business, reduce regulatory hurdles, and provide a much-needed boost to industries that have been under pressure in the post-pandemic period.
Structure of Tariffs Agreed Under the FTA
The FTA outlines a structured and phased approach to tariff reduction and elimination. India has agreed to remove tariffs on 99% of its exports to the UK, providing substantial relief to sectors such as textiles, leather, gems and jewellery, and pharmaceuticals. In return, the UK will gradually reduce and eliminate tariffs on 90% of its goods exported to India over a ten-year horizon. Products such as automotive components, high-end alcohol, and processed food items will benefit from phased concessions. A significant highlight is the reduction in automotive tariffs from 100% to 10%, which is likely to have a positive ripple effect across industries dependent on vehicle imports and exports. Tariff concessions are complemented by provisions for improved market access, customs cooperation, and trade facilitation.
India-UK Bilateral trade in recent years
India-UK bilateral trade has shown consistent growth in recent years, reflecting deepening economic interdependence. According to the data from Ministry of Commerce and Industry, Government of India, the total trade volume between the two countries rose from USD 17.1 billion in 2021-22 to USD 21.3 billion in 2023-24. The trade has been largely balanced, with India maintaining a moderate trade surplus. Merchandise exports from India to the UK stood at around USD 12.9 billion in 2023-24, while imports from the UK were valued at approximately USD 8.4 with a trade surplus of USD 4.5 billion.
The UK has consistently been one of India’s top trading partners in Europe, and the new FTA is expected to take this trade relationship to unprecedented levels by removing long-standing tariff and non-tariff barriers. With the ease of doing trade between the India and UK, the bilateral trade is expected to more than double in the next 6-7 years.
Structure of Trade Between India and UK
The trade structure between India and the UK is both complementary and strategically important for each nation. India’s principal exports to the UK include ready-made garments and textiles, gems and jewellery, engineering goods, petroleum and petrochemical products, transport equipment, spices, machinery and instruments, pharmaceuticals, and marine products. The FTA's elimination of tariffs on 99% of Indian goods will make these products more competitive in the UK market, benefiting Indian SMEs and large exporters alike.
On the import side, India sources precious and semi-precious stones, high-end machinery, metal scraps, engineering goods, professional instruments, chemicals, and medical devices from the UK. British exports are expected to surge, especially in sectors such as alcohol, confectionery, processed foods, and specialty chemicals. The UK also exports cutting-edge technology and high-end manufacturing equipment, which are essential for India’s rapidly modernizing industrial base. The FTA aims to streamline customs procedures and mutual recognition of standards, which will help reduce transaction costs and enhance predictability for traders.
India and UK Investment Flows
Investment relations between India and the UK have been robust, with each country playing a vital role in the other’s economic development. In FY 2022-23, India received USD 1.74 billion in foreign direct investment (FDI) from the UK, a significant increase from USD 1 billion in FY 2021-22. Over the cumulative period from April 2000 to June 2023, UK investments in India have totalled approximately USD 34.29 billion, making the UK one of India’s top investors. British firms have made substantial investments in sectors like banking, insurance, retail, infrastructure, and renewable energy in India.
Conversely, India has emerged as one of the largest investors in the UK. Indian investments are largely concentrated in the fields of information technology, pharmaceuticals, automotive, and industrial manufacturing. In 2020-21, India was the second-largest investor in the UK in terms of the number of projects, according to the UK Department for International Trade. The FTA is expected to further boost bilateral investments by offering greater certainty, protection of intellectual property, and simplified business regulations. It also includes provisions for dispute resolution and investor protection, which are crucial for attracting long-term capital.
Potential Benefits from India–UK FTA
The India-UK FTA is poised to deliver a broad array of benefits across sectors and stakeholders:
1. Revival of labour-intensive sectors: The Indian textile and apparel industry, which currently faces UK tariffs of up to 10%, stands to gain immensely. With tariff elimination, Indian products will be more competitive in the British market, leading to higher exports and employment generation.
2. Export growth and trade diversification: The UK is keen on diversifying its trade relationships post-Brexit. The FTA offers British exporters preferential access to a large and growing Indian market.
3. Consumer benefits: Consumers in both countries will benefit from increased product variety, improved quality, and lower prices due to the enhanced competition and supply chain efficiencies enabled by the FTA.
4. SME empowerment: The agreement includes provisions for the promotion of small and medium-sized enterprises (SMEs) through digital trade, technical cooperation, and access to new technologies. This will foster innovation and entrepreneurship, particularly in high-growth sectors.
5. Strategic and geopolitical alignment: Beyond economics, the FTA strengthens the strategic partnership between India and the UK. It reinforces cooperation in areas such as digital technology, climate change, education, and mobility of professionals.
6. Job creation and skill development: The anticipated growth in trade and investment will spur job creation in both countries. Sectors like IT, manufacturing, logistics, and hospitality are expected to see new employment opportunities, accompanied by upskilling initiatives under bilateral cooperation programs.
7. Legal and institutional reforms: The FTA includes strong institutional mechanisms for monitoring and reviewing the agreement’s implementation. It encourages transparency, good regulatory practices, and mutual legal recognition, which will reduce litigation and enhance business confidence.
Conclusion
The India-UK Free Trade Agreement marks a new chapter in the bilateral economic relationship between two dynamic economies. By significantly lowering tariffs, removing non-tariff barriers, and creating a transparent trade environment, the FTA will enhance the flow of goods, services, investments, and people. It is expected to unlock vast economic potential, boost GDP growth, and reinforce the strategic alignment of India and the UK in the global arena. As the world witnesses growing economic fragmentation and protectionism, this FTA stands out as a model for mutually beneficial cooperation rooted in shared values, economic pragmatism, and a forward-looking vision.
