India-UK Free Trade Agreement

India-UK Free Trade Agreement

Why in News? 

After years of talks, India and the United Kingdom have finally reached a historic agreement in principle on a Free Trade Agreement (FTA).

India-UK Free Trade Agreement: Important Features 

• Extensive Market Access: India will receive zero import duty access in the UK for about 99% of products. These include major industrial sectors such as leather, textiles, gems and jewellery, mechanical equipment, auto parts, chemicals, and furniture.
• Sensitive Exclusions: India has kept sensitive items like dairy products, apples, cheese, plastic, smartphones, diamonds, and television camera equipment out of the duty relaxation list.
• Public Procurement Access: British companies are allowed to participate only in non-sensitive central government tenders above ₹200 crore.
• Services Sector: The UK has ensured temporary migration provisions for Indian professionals. Up to 1,800 annual visas will be provided for IT specialists, researchers, chefs, yoga instructors, and classical musicians, enhancing the global presence of India’s services sector.
• Tariff Reductions: Import duties on Scotch whisky and gin from the UK will be reduced from 150% to 40% over a period of 10 years.
  • Similarly, customs duties on electric and petrol-based vehicles (EVs and ICE vehicles) will be reduced in phases, making high-quality vehicles more affordable in India.
• Social Security Agreement: India and the UK have signed a social security agreement that will save up to 20% of salaries for Indian employees and employers working temporarily in the UK. Indian IT firms are projected to gain more than ₹4,000 crore from this agreement.
• The FTA aims to boost bilateral trade, with both countries targeting $120 billion by 2030.

Main Objectives of the India-UK Free Trade Agreement

• UK’s New Strategy: After separating from the European Union, the UK had to rebuild its trade network. Signing a deal with a fast-growing market like India became a necessary strategy. This partnership provides the UK with new export opportunities and a stable investment destination.
• China-Plus-One Strategy: As western countries look to reduce dependence on China, India is emerging as a reliable alternative supply hub. 
• Trade Diversification: This agreement is a step beyond India’s traditional trade partnerships, supporting a balanced global trade policy and reducing dependence on China and RCEP blocs.
• Global Instability: Amidst US protectionism, European sanctions, and geopolitical tensions, the FTA offers a predictable and balanced trade framework for both India and the UK.

India-UK Trade and Economic Relations

• Trade Statistics:
  • In FY 2022-23, total bilateral trade between India and the UK reached £36.3 billion, recording a 34.2% growth.
  • As of the last quarter of 2024, India’s exports to the UK stood at £21.6 billion, while imports were £14.7 billion, resulting in a favorable trade balance for India.
  • The UK is India’s fourth largest export destination, while India is the UK’s eleventh largest trading partner. Total bilateral trade between India and the UK has reached approximately $60 billion.
• Export and Import Commodities:
  • India primarily exports textiles, pharmaceuticals, petroleum, metal products, vehicles, and machinery to the UK.
  • Imports from the UK include non-ferrous metals, machinery, scientific equipment, chemicals, and electrical tools. This mutual complementarity shows how both nations’ production capacities and needs align.
• Trade in Services:
  • In FY 2022-23, India-UK services trade reached £17.7 billion, with India exporting £11.0 billion worth of IT, education, finance, and health services, and importing £6.7 billion in services.
• Investment Relations:
  • In 2023-24, India invested in 108 UK projects, generating over 7,500 jobs.
    India is the second-largest foreign investor in the UK, after the USA.
  • The UK is also among India’s top six investors, having invested over $35 billion.
• Indian Diaspora:
  • Over 1.8 million people of Indian origin live in the UK, making up 3.1% of the total population, yet contributing over 6% to the UK’s GDP.
  • Around 65,000 Indian-owned companies are active in the UK. This community acts as both a cultural bridge and economic link between the two countries.

Benefits of the India-UK Free Trade Agreement

• Increase in Trade: The India-UK FTA will simplify market access and reduce costs for products from both nations.
  • The UK will benefit from more competitive prices on items like whisky, gin, automobiles, aerospace components, and chocolates. 
  • On the other hand, India stands to gain in sectors such as textiles, leather, medical equipment, and engineering goods, boosting exports in these areas.
• Job Creation: As a result of the FTA, the UK economy is expected to get an annual contribution of £4.8 billion by 2040, creating new jobs in both countries. In India, labor-intensive sectors such as textiles and leather will see more employment opportunities. The growth in these areas will support economic stability and development.
• Mobility of Professionals and Services: Under the FTA, India may gain a competitive edge in sectors like IT, financial services, and professional services. 
  • Also, freelance professionals such as yoga instructors, musicians, and chefs will find it easier to move. It will create more opportunities for business travelers, investors, and company employees.
• Removal of Non-Tariff Barriers: The FTA will eliminate non-tariff barriers, ensuring uniform trade rules and free movement of goods and services between both countries. 

India-UK Free Trade Agreement: Concerns

• Unequal Competition in Agriculture: According to Indian farmers’ organizations, the agreement may lead to a sharp fall in prices of spices, tea, and other agricultural products. 
  • These sectors are already in a weak position due to WTO’s outdated subsidy calculations. It will be hard to compete with cheap imported goods.
  • Earlier agreements with Sri Lanka and ASEAN countries have already resulted in price drops—for example, rubber prices fell from ₹230 per kg (2011) to ₹170 per kg in 2025.
• Threat to MSME Sector: There are concerns that British companies may capture the market share of India’s MSME sector. These foreign firms could weaken India’s policy tools in government procurement, health, defense, and renewable energy.
• Increased Import Dependence: With the FTA, there is a risk of rising import dependency in sensitive sectors. Experts believe that the influx of cheap foreign goods could negatively impact India’s domestic production capacity.
• Carbon Border Tax: Proposals like the Carbon Border Adjustment Mechanism (CBAM) by the European Union might also be implemented in the UK. This could affect India’s exports of aluminium and steel. India may have to pay carbon taxes, increasing uncertainty in the trade environment.
• Limited Benefits: The Global Trade Research Initiative (GTRI) states that the agreement may bring only limited trade benefits to India, as many Indian products already have zero or low tariff access to the UK market. So, the commercial impact of this agreement may be relatively low.