India-UK Free Trade Agreement

India-UK Free Trade Agreement

Why in News? 

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

• On July 24, 2025, India and the UK officially concluded a landmark Free Trade Agreement. This followed 14 negotiation rounds that began in 2022.

India-UK Free Trade Agreement: Important Features 

• • Broad Scope: India and the United Kingdom finally signed the Free Trade Agreement (FTA) on July 24, 2025. The agreement sets a target to expand bilateral trade to US$120 billion by the year 2030. It is India’s most wide-ranging trade pact with any G-7 country. The agreement covers goods, services, investment, digital trade, and sustainable development. 

• Tariff Reforms: The FTA brings major tariff reforms for both countries. Over 11,500 traded products will see reduced or eliminated tariffs under this agreement. The UK will phase out customs duties on all its tariff lines within a seven-year timeframe. This will include 99.6% of India’s exports. 

• India will provide tariff relief for over 80% of UK goods in ten years. This covers about 70% of UK imports to India. 

• Sectors such as Indian textiles, jewellery, and pharmaceuticals will enjoy zero-duty access in the UK.

• • • India will gradually slash its high 150% import duty on Scotch whisky over a defined timeline. The rate will drop to 75% over the next three years, and a further reduction to 30% will apply under a special quota of 2 million litres annually. 
    • Up to 10,000 electric and hybrid vehicles from the UK will be allowed at reduced 50% duty per year.

• Trade Authenticity: The agreement enforces strict rules of origin. Eligible products must meet a regional value threshold of 40–45% to qualify for benefits. In many cases, a change in the product’s tariff classification is also required. Inputs from both India and the UK will be counted jointly, offering flexibility to manufacturers.

• Indian Textiles and Apparel: Under the agreement, Indian textile and garment exports will enjoy zero-duty access in the UK market. Previously, these goods attracted tariffs ranging from 10% to 12%. The elimination of these duties is expected to boost India’s exports by approximately US$ 1.35 billion every year. 

• Digital Trade: This FTA allows cross-border data transfers with limited exceptions. Electronic contracts and digital signatures receive the same legal treatment as paper-based ones. Companies operating under the FTA will not be required to disclose proprietary source code. It also sets the stage for cooperation in cybersecurity, AI, digital identity, and public digital infrastructure.

• Services Sector: The services chapter opens 115 subsectors across 11 industries. These include IT, finance, education, engineering, and business services. The agreement uses a negative list format. All services are open unless clearly excluded. Indian professionals will gain smoother access to UK markets.  

• SPS Alignment: Indian food products like basmati rice, seafood, and mangoes are now accepted under UK food safety norms. Pre-approved exporters will bypass repeated inspections. A joint SPS committee will address market access and resolve technical barriers.

• Labour Commitments: The deal includes a mutual pledge to follow International Labour Organization’s fundamental labour principles. These include bans on child and forced labour. They also support climate goals under the Paris Agreement. A dedicated subcommittee will track progress and allow civil society engagement.

• Customs Simplification: Customs processes will be fully digitized to reduce delays. Customs will provide advance rulings in 150 days, and clear perishable items within six hours. Standard goods shipments will be cleared between 24 to 48 hours, speeding up trade logistics. Authorized Economic Operators will receive fast-track services and fewer checks.

• Investment Protections: Both nations allow free flow of dividends, royalties, and capital. Though it lacks an investor-state arbitration mechanism, it provides a clear path for dispute resolution through government-level consultations.

• Intellectual Property Rights: Indian businesses now gain access to UK public procurement for projects above specified limits. All public tenders will be bound by transparent and competitive bidding procedures. Intellectual property enforcement will be strengthened. The two nations will cooperate on piracy, copyright enforcement, and recognition of geographical indicators.

• 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.

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.