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Touted as historic, the India-UK FTA promises enhanced trade and trust yet reveals limits on migration, services, and climate flexibility.
In recent weeks, an important development was sidelined amid all the heat surrounding India-Pakistan tensions. On 6 May 2025, India and the United Kingdom (UK) concluded talks on a Free Trade Agreement (FTA) after over three years of negotiations that commenced in January 2022 under the leadership of Prime Minister (PM) Narendra Modi and the British Conservative Party. After four British PMs and several missed deadlines, the deal was finally concluded in 2025 under PM Keir Starmer and the Labour Party, which was elected to power in July 2024.
The recently concluded India-UK FTA is being touted as both countries' largest and most significant trade deal. For the latter, the deal is a tangible symbol of post-Brexit trade policy and engagement since it exited the European Union (EU) and the European Single Market in 2020.
For India, the benefits include the complete elimination of British tariffs on 99 percent of Indian exports. Indian labour-intensive sectors such as textiles and apparel are especially likely to benefit from the reduced UK tariffs that currently stand at 10 percent and face stiff competition from countries such as Bangladesh. Engineering goods, auto parts, chemicals, gems and jewellery, leather, sports goods, and toys are other key sectors that will benefit from reduced tariffs. The FTA is expected to contribute towards the wider Indian goal of reaching US$1 trillion in annual goods exports by 2030.
Alcohol and automobiles are two crucial sectors, notably targeted by the United States (US) President Donald Trump’s tariffs, that will see Indian tariff reductions.
The UK, on the other hand, will see Indian tariffs slashed on 90 percent of tariff lines, 85 percent of which will become tariff-free within a decade. The product lines include medical devices, machinery, aircraft parts, lamb, salmon, soft drinks, chocolate, biscuits, and cosmetics. Alcohol and automobiles are two crucial sectors, notably targeted by the United States (US) President Donald Trump’s tariffs, that will see Indian tariff reductions. Indian tariffs on British whisky and gin will decrease from 150 percent to 75 percent and then further lowered to 40 percent in ten years. Tariffs on British automobiles will be lowered from 110 percent to 10 percent, albeit with determined quotas for car exports that include 22,000 high-value British electric vehicles (EVs) in return for a quota of low and mid-range Indian EVs exported to the UK.
On the issue of migration that remained a major sticking point in the negotiations, even while the deal allows for easier mobility for Indian professionals working in certain sectors including contractual service suppliers, chefs, musicians, and yogis, the result has been a major comedown from New Delhi’s previous demands for greater professional quotas, particularly in the IT and healthcare sectors.
A ‘Double Contribution Convention’ has been agreed upon that exempts Indians temporarily seconded to the UK and vice versa from social security contributions for three years. The decision aims to prevent employees from paying into multiple social security systems. This Convention, while boosting opportunities for Indian professional services in the UK, will offer British businesses greater access to India’s talent pool through enhanced ease of movement. It will enable savings of 20 percent for Indian employers and financial gains amounting to INR 4,000 crore. However, British opposition politicians have objected to the Convention, assuming that it undercuts British workers, for whom National Insurance Contributions have been raised, and creates a ‘two-tier’ tax arrangement.
Demonstrating flexibility on India’s part, the blueprint includes chapters on labour rights, environmental standards, anti-corruption, and gender equality, despite India’s traditional aversion to including such areas in trade agreements.
The deal also allows British companies to bid for tenders and gain access to India’s vast procurement market—“approximately 40,000 tenders per year with a value of at least £38 billion.” Demonstrating flexibility on India’s part, the blueprint includes chapters on labour rights, environmental standards, anti-corruption, and gender equality, despite India’s traditional aversion to including such areas in trade agreements.
Sensitive goods such as dairy products, apples, and cheese will see tariffs remain in place to protect domestic industries.
Referred to as a ‘missed opportunity’ by the UK Law Society, the deal makes no reference to legal services, which contribute £57.8 billion annually to the British economy. Despite changes in Indian regulations that allow foreign firms to practice in India without a local partner, albeit with caveats. India has traditionally been reluctant to open up its services sector, which contributes over 50 percent of the country’s Gross Domestic Product (GDP).
Critically, the deal does not exempt India from the UK’s Carbon Border Adjustment Mechanism (CBAM), set to come into effect from 1 January 2027. The mechanism aims to levy taxes on carbon-intensive imported products such as iron, steel, and fertilisers based on their carbon emissions. Talks between India and the UK are expected to continue on this major point of contention, in addition to negotiations to finalise a Bilateral Investment Treaty (BIT) to protect investments and resolve disputes after India suspended BITs in 2016.
The deal is expected to increase bilateral India-UK trade, currently valued at £42 billion, by £25.5 billion annually by 2040. In 2024, India was the UK’s 12th largest trading partner, while the UK was India’s 14th largest trading partner, accounting for only 2.4 percent of total UK trade. More broadly, the FTA is expected to accelerate innovation, generate jobs, and stimulate greater trade and investment flows.
A trade deal with India is crucial for Britain’s ‘tilt towards the Indo-Pacific’, its wider engagement with the Global South and its post-Brexit global ambitions.
Striking trade deals with reliable trading partners has been an important priority for both India and the UK. India’s vast market of 1.5 billion people and stable economic trajectory are a natural fit for Britain’s agenda of economic revival at a time of inflation, global instability, and the ongoing economic repercussions of the Russia-Ukraine war. A trade deal with India is crucial for Britain’s ‘tilt towards the Indo-Pacific’, its wider engagement with the Global South and its post-Brexit global ambitions.
The deal is expected to increase UK exports to India by almost 60 percent (worth £15.7 billion), while increasing Indian exports to the UK by only 25 percent (worth £9.8 billion). Even if such estimates are accurate, by enhancing access to each other’s markets amidst Trumpian disruptions and Chinese dependencies, the deal may shield the world’s fifth and sixth largest economies, India and the UK, respectively, from external shocks and enhance economic security, especially as India remains outside major trade blocks like the Regional Comprehensive Economic Partnership (RCEP) or the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
As the deal awaits ratification by both parliaments, the FTA will move the India-UK strategic partnership, currently being guided by the Roadmap 2030, to a more solid footing.
Shairee Malhotra is the Deputy Director of the Strategic Studies Programme at the Observer Research Foundation.
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Shairee Malhotra is Deputy Director - Strategic Studies Programme at the Observer Research Foundation. Her areas of work include Indian foreign policy with a focus on ...
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