Even as India launched a missile attack on terror bases across the border, news emerged that India and the United Kingdom (UK) have concluded talks on a Free Trade Agreement (FTA). The agreement is said to have been reached on May 6. Given that this has been in the works for a long time, it is a significant development. More importantly, it could signal to both the US and EU that India is capable of negotiating and securing a sophisticated trade deal.
India currently enjoys a trade surplus with the UK. In the financial year 2024, India’s exports to the UK amounted to approximately US$13 billion. Key export items included electrical machinery, nuclear reactors, boilers, engineering goods, pearls, ready-made garments, and precious and semi-precious stones. Imports from the UK stood at around US$8.4 billion, primarily consisting of chemicals and engineering goods.
The full text of the agreement is not yet available for detailed analysis, so assessments are currently based on the official press release from the Ministry of Commerce & Industry, Government of India, and more detailed notes from the UK’s Department for Business & Trade.
India has described the FTA as a modern, comprehensive, and landmark agreement aimed at achieving economic integration, trade liberalisation, and tariff concessions. It is stated that India will benefit from tariff elimination on approximately 99% of tariff lines, creating substantial opportunities for trade expansion. The deal is expected to positively impact labour-intensive sectors such as textiles, leather, footwear, engineering goods, and auto parts. It is also believed that the FTA will significantly boost employment in India, especially due to one of the UK’s most ambitious service-sector commitments in any FTA to date.
The agreement is also expected to facilitate the mobility of professionals and independent service providers, such as yoga instructors, musicians, and chefs.
A particularly significant provision is the exemption from social security contributions in the UK for Indian workers temporarily posted there, under the Double Contribution Convention. This will apply for up to three years and is expected to lead to significant financial savings for Indian service providers, enhancing their competitiveness. (Notably, this provision has drawn criticism from a Conservative Party leader, who labelled it a system of ‘two-tier taxes’.)
India has also stated that it has ensured non-tariff barriers are appropriately addressed to guarantee the free flow of goods and services, avoiding unjustified restrictions on Indian exports.
The UK’s Department for Business & Trade has similarly praised the agreement, stating it is the “best deal that any country has ever agreed with India.” It projects that the comprehensive deal will increase UK GDP by £4.8 billion and UK wages by £2.2 billion annually in the long run. Bilateral trade is expected to grow by £25.5 billion each year over the same period.
The UK acknowledges that India represents one of the most dynamic and fastest-growing economies in the world, currently the fifth largest globally and projected to rise to third by 2028. It estimates that India’s demand for imports will grow by 144% in real terms between 2021 and 2035, reaching £1.4 trillion. India is already ranked the second most sought-after manufacturing destination globally, thanks to its economic growth, cost advantages, and large labour force. A Grant Thornton study indicates that 42% of UK businesses surveyed without an existing presence in India plan to establish one.
The agreement is expected to accelerate UK-India trade, with UK exports to India significantly projected to grow by £15.7 billion in the next two years. Upon implementation, 64% of UK tariff lines will become eligible for tariff-free access to India, covering £1.9 billion of UK exports (2022 figures). This includes aircraft parts, scientific instruments, and food products like fresh and frozen salmon, cod, and lamb. Over the next 10 years, 85% of tariff lines and 66% of UK exports to India are expected to qualify for tariff-free access. This will include items such as chocolate, gingerbread, biscuits, soft drinks, auto parts, machinery, and medical technology devices.
However, the agreement is not without its challenges. India maintains the highest average tariff rates among G20 countries, with some products facing duties above 100%. The country is ranked as the eighth most restrictive services market by the OECD and has a regulatory environment often considered uncertain. These factors have historically deterred UK companies from entering or expanding in India.
Nonetheless, this FTA appears to have satisfied both parties. India, learning from previous FTA experiences, has taken a more strategic approach to ensure domestic interests are protected. Indian industry must now brace for increased competition from cheaper UK imports and focus on producing higher-quality, cost-effective goods.
The finer details of the agreement—including the Rules of Origin and accompanying notifications—are still awaited. Of note is the fact that there is no exemption from the UK’s proposed carbon tax. Revenue implications will become clearer in due course, but if Indian exporters can capitalise on the FTA’s generous terms, the benefits may well outweigh the concessions.
— The author, Najib Shah, is former Chairman, Central Board of Indirect Taxes & Customs. The views expressed are personal.
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