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.

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.

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.