India and UK Free Trade Agreement

PWOnlyIAS

May 07, 2025

India and UK Free Trade Agreement

Recently, India and the UK successfully concluded a Free Trade Agreement (FTA), bringing to an end around three years of negotiations.

  • The Indian PM said that the two nations have successfully concluded mutually beneficial Free Trade Agreement, along with a Double Contribution Convention.

About Free Trade Agreement or FTA

  • FTA are agreements between countries or trading blocs , aimed at setting rules that promote trade and ease regulations. They can cover both goods and services.

Timeline of India–UK FTA Negotiations

  • May, 2021: Prime Ministers Narendra Modi and Boris Johnson launched the Enhanced Trade Partnership (ETP).
    • They agreed on a roadmap for a comprehensive and balanced FTA.
  • January, 2022: The FTA negotiations were formally  launched in New Delhi.
  • Jan 2022 – Jan 2025: 14 rounds of FTA negotiations were held between Indian and UK officials.
  • March 2024: Talks were paused due to Indian general elections. Both sides agreed to resume post-election.
  • February 2025: Negotiations resumed after an 8-month pause.
  • May 6, 2025: India and the UK concluded FTA negotiations.
    • Also announced the conclusion of the Double Contribution Convention pact.

Reasons For The Need Of India- UK FTA

  • Post-Pandemic Supply Chain Diversification: Western companies realized the risk of over-dependence on China.
    • There was a push for a ‘China-plus one’ trade strategy to diversify sourcing and reduce vulnerabilities.
  • UK’s Post-Brexit Economic Strategy: After leaving the European Single Market, the UK lost seamless trade and mobility within Europe. 
    • India’s large and growing market offered a valuable alternative to offset this loss.
  • UK’s Domestic Economic Pressures: The UK has been facing a cost of living crisis. The FTA offers the promise of cheaper imports and increased export opportunities.
  • India’s Strategy after RCEP Exit: India opted out of the Regional Comprehensive Economic Partnership (RCEP) in 2019, avoiding a China-dominated framework
    • This created a need to pursue bilateral deals like the one with the UK.

Key Highlights of the UK-India Free Trade Agreement

  • Tariffs:
    • Zero-Duty Access: 99% of Indian goods exported to the UK will now face zero tariffs, covering nearly all Indian export interests.
    • Tariff Reductions by India: India will slash tariffs on 90% of UK tariff lines, with 85% becoming zero-duty within 10 years.
  • Trade: 
    • Trade Boost: Expected to increase bilateral trade by £25.5 billion annually by 2040.
    • Current Bilateral Trade: Was £42.6 billion in 2024, with India being the UK’s 11th-largest trading partner.
  • Key UK Sectors Benefiting: 
    • Alcohol: Tariffs on whisky and gin cut from 150% to 75%, then to 40% by the tenth year of the deal.
      • The alcohol beverage industry in India fears similar agreements with the US and EU would adversely impact the Indian alcohol beverage industry.
    • Automobiles: Import tariffs on UK cars to be reduced to 10% under a quota (from over 100%). 
  • Key Indian Sectors Benefiting
    • Labour-intensive exports: Textiles, leather, marine products, toys, gems & jewellery, sports goods, and footwear.
    • Industrial sectors: Engineering goods, auto parts, organic chemicals.
  • Mobility & Services
    • Work Visas: Around 100 new annual visas for Indian professionals, especially in IT and healthcare.
    • Social Security Pact/Double Contribution Convention: Under the Double Contribution Convention, skilled Indian workers employed in the UK and their employers will be exempted from paying social security contributions for three years.
    • Most-Favoured Nation (MFN) Commitments: UK also made MFN commitments in 92 sectors/sub-sectors, including: Privately-funded health services and Professional and education services.
    • Economic Needs Test (ENT): The UK has agreed not to impose numerical restrictions or Economic Needs Test requirements for the temporary entry of natural persons to their territory.

Key Terms:

  • Most-Favoured Nation (MFN) Status: This means that a country must treat all WTO trading partners equally. If a country grants a trade advantage (like lower tariffs or fewer trade barriers) to one country, it must offer the same to all other WTO members.
  • Economic Needs Test (ENT): It is a non-transparent, discretionary criterion that a country may use to restrict foreign service providers from entering its market unless there is a proven “economic need.”
    • The economic needs test has been identified as a barrier to market access under Article XVI of the General Agreement on Trade in Services (GATS).
      • GATS is a treaty of the World Trade Organization (WTO) that governs the international trade of services.

Significance of the India–UK FTA for India

  • Trade: The Indian government expects the deal to double the bilateral trade between the two countries — currently at about $60 billion — by 2030.
  • Strategic Partnership:  Strengthens ties post-Brexit, positioning India as a key ally in the UK’s “Global Britain” strategy.
  • Opening of Guarded Sectors: For the first time, India has opened up highly protected sectors like automobiles to tariff reductions. This is a major shift in trade policy.
  • Boost to Exports and Domestic Industry In India: The UK will eliminate tariffs on a wide range of Indian goods — textiles, footwear, auto components, gems and jewellery, engineering goods, etc.
    • These sectors are labour-intensive, and tariff-free access will boost exports, create jobs, and enhance India’s global competitiveness.
  • Workforce Mobility: The India-UK FTA’s 3 year social security exemption for Indian professionals significantly enhances cost competitiveness and workforce mobility.
    • It paves the way for deeper services sector cooperation, especially in IT, finance, education, and healthcare.
  • Model for Future FTAs: India’s approach balances market access with national interests, setting a precedent for future negotiations and ongoing trade talks with the EU, US,etc.
  • Protection of Sensitive Sectors: India excluded dairy, apples, and certain agricultural items from tariff cuts, protecting its small farmers and domestic agri-economy.
    • This shows India’s ability to secure its vulnerable sectors even in high-level trade pacts.

Challenges In the India-UK FTA Negotiations

  • Limited Marginal Gains for India: As per the Global Trade Research Initiative (GTRI), many Indian exports to the UK already enjoyed low or zero tariffs. This limited the additional benefit India could gain from tariff concessions.
  • Services and Work Permits: India sought increased mobility for IT and healthcare professionals.
    • Immigration was a sensitive topic in the UK post-Brexit.
    • The final agreement allowed only around 100 new annual work visas for Indian professionals.
  • UK’s Proposed Carbon Tax: The UK planned to impose a carbon border tax on imports like metals based on their carbon footprint.
    • India opposed it as it could restrict Indian exports of metal products.
  • Work visa and Legal Services: India dropped its demand for post-study work visas for students.
    • The UK withdrew its request to open legal services in India.
      • Legal services in India are governed by the Advocates Act under the Bar Council of India (BCI)
      • The Indian legal fraternity has been largely opposed to foreign legal entry.
  • Farmers Opposition In India: Farmers’ organisations have strongly opposed the India–UK Free Trade Agreement, warning that it will hurt Indian farmers, fishers, and small food-processing units by allowing cheaper UK goods to flood the market, making it hard for local producers and MSME’s  to compete.

Way Forward

  • Early Implementation: India must ensure the swift ratification and operationalisation of the FTA to unlock its full benefits at the earliest. 
    • A dedicated joint implementation committee should be set up to monitor compliance, address grievances, and evaluate periodic progress.
  • Empower MSMEs: There is a need to strengthen India’s micro, small, and medium enterprises (MSMEs) so that they can participate in bilateral trade, especially as the deal is poised to benefit labour-intensive sectors such as textiles, leather, footwear, gems and jewellery, and auto components.
  • Bilateral Investment Treaty (BIT): India should prioritise the early conclusion of BIT with the UK. This will provide legal clarity and investor protection, thereby boosting confidence and foreign direct investment inflows.
  • Export Diversification and Value Addition: India must promote value-added and differentiated exports over low-value raw materials. 
    • Government support should prioritise branding, marketing, and certification of Indian products especially those with Geographical Indications (GI) to enhance competitiveness.
  • Negotiations on CBAM: India needs to continue negotiations with the UK to find equitable solutions around the Carbon Border Adjustment Mechanism (CBAM). 
    • A rebalancing mechanism should be finalised to shield Indian industries from unfair carbon-related tariffs.

Conclusion

The India–UK FTA is a milestone in economic ties. However, its success depends on the effective implementation and strong policy support.

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Quick Revise Now !
UDAAN PRELIMS WALLAH
Comprehensive coverage with a concise format
Integration of PYQ within the booklet
Designed as per recent trends of Prelims questions
हिंदी में भी उपलब्ध

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