UK-India Free Trade Agreement: A New Chapter in Bilateral Relations

On May 6, 2025, the United Kingdom and India concluded a historic Free Trade Agreement (FTA), marking a defining moment in their economic and strategic partnership. The agreement, the result of over three years of intense negotiations, is the most significant FTA for the UK since Brexit and a major milestone for India as it seeks deeper integration into global value chains. This forward-looking deal is expected to reshape bilateral trade, investment, and regulatory cooperation, setting a new benchmark for international trade policy.

Leaders Hail a “Historic Milestone”

The announcement was met with enthusiasm from both governments. Indian Prime Minister Narendra Modi and UK Prime Minister Sir Keir Starmer spoke by phone to welcome the conclusion of the agreement. In a joint statement, Prime Minister Modi described the agreement as a “historic milestone” that would further deepen the Comprehensive Strategic Partnership between India and the UK, catalyzing trade, investment, growth, job creation, and innovation in both economies.

“In a historic milestone, India and the UK have successfully concluded an ambitious and mutually beneficial Free Trade Agreement, along with a Double Contribution Convention. These landmark agreements will further deepen our Comprehensive Strategic Partnership, and catalyse trade, investment, growth, job creation, and innovation in both our economies,” said Prime Minister Modi in a social media post.

Prime Minister Starmer echoed this sentiment, emphasizing that strengthening alliances and reducing trade barriers with major economies is central to the UK’s Plan for Change, aimed at delivering a stronger and more secure economy.

“Strengthening alliances and reducing trade barriers with economies around the world is part of our Plan for Change to deliver a stronger and more secure economy,” said Prime Minister Starmer

Both leaders agreed that the agreement would open new opportunities for businesses, strengthen economic linkages, and deepen people-to-people ties.

Ambitious Scope and Key Provisions

The UK-India FTA is notable for its breadth and ambition. It covers not only trade in goods and services but also digital trade, government procurement, intellectual property, labor standards, gender equality, anti-corruption, and environmental protections—making it one of the most comprehensive trade deals either country has signed.

Tariff Reductions and Market Access

A major highlight is the substantial reduction in tariffs. When the FTA comes into force, 64% of UK tariff lines will be eligible for tariff-free export to India, covering £1.9 billion of current UK exports. Over the next decade, this will expand to 85% of tariff lines and 66% of existing Indian imports from the UK. Tariffs on UK exports will be cut by over £400 million initially, rising to £900 million after ten years.

For India, 99% of its exports to the UK will benefit from zero duty, opening up massive opportunities for labor-intensive sectors such as textiles, leather, gems, and jewelry. The UK has also agreed to eliminate tariffs on Indian animal products, vegetable oils, and processed foods, making these items more competitive in the UK market.

Notable sector-specific benefits include:

• Whisky: UK whisky exports will see tariffs cut from 150% to 75% immediately, and to 40% after ten years. The Scotch Whisky Association described the deal as “transformational,” projecting a £1 billion increase in exports and 1,200 new jobs in the UK over the next five years

• Automobiles: High-end cars from the UK will see tariffs drop from over 100% to 10% under a quota system

• Lamb: Tariffs on UK lamb will be cut from 33% to zero immediately.

• Indian Textiles: Indian textile and apparel exports are expected to increase by approximately $5 billion, improving global competitiveness and generating significant job opportunities.

Sectoral Analysis: Where Opportunities Converge

1. Textiles and Apparel: Reclaiming Global Competitiveness

The elimination of UK import duties (8–12%) on Indian textiles has ignited optimism in India’s $152 billion textile sector. Gokaldas Exports, a Bengaluru-based apparel manufacturer, exemplifies this shift.

Case Study:

• Current Position: 5% of revenue from UK clients ($7.5 million annually).

• Post-FTA Strategy: Targeting 15% revenue share by 2027 through partnerships with UK fast-fashion retailers.

• CEO Insight: “The duty parity with Bangladesh erases their 9.6% cost advantage. We’re investing in sustainable dyeing tech to meet UK ESG standards.

Projected sector-wide gains:

• $5 billion annual export increase by 2030.

• 1.2 million new jobs in Tamil Nadu and Gujarat textile clusters.

Comparative Advantage Table

Metric	India (Post-FTA)	Bangladesh	Vietnam
UK Tariff Rate	0%	0%	6%
Avg. Monthly Wage	$180	$95	$280
Lead Time to UK	21 days	35 days	28 days

Source: Angel One Research

2. Automotive: Electrifying Cross-Border Innovation

The FTA’s auto provisions are transforming two-way trade:

• UK Luxury Vehicles: Jaguar Land Rover (JLR) will reduce Discovery Sport prices in India by 22% (₹58 lakh to ₹45 lakh) under the 10% tariff regime.

• Indian EVs in UK: Mahindra plans to launch the XUV 9e electric SUV at £28,000—15% below UK-made rivals.

Interview Excerpt – Rajesh Jejurikar, CEO, Mahindra Auto:“Our Gujarat EV plant will supply 5,000 units annually to the UK by 2026. The FTA’s Rules of Origin clause (55% local value addition) aligns perfectly with our Bharat Battery Alliance sourcing model.” 

Sector Projections:

• UK auto exports to India: £1.2 billion by 2030 (from £480 million in 2024).

• Indian EV parts market: $2.1 billion opportunity for UK semiconductor firms.

3. Digital Trade: Building the Silk Road of Bits

The FTA’s digital chapter, described as “the most advanced in Global South trade deals”, enables:

• Data Localization Exemptions: UK fintechs can process Indian user data in European servers.

• IP Protections: Copyright terms extended to 60+ years for UK media firms.

Case Study – Commenda (London SaaS Startup):

• Pre-FTA Challenge: Needed physical office to service Indian clients.

• Post-FTA Model: Remote contracts with Mumbai-based logistics firms via API integrations.

• Growth: 300% client increase in Q3 2025. “The digital annex let us scale without upfront CAPEX,” notes CEO Clara Bennett

Key Digital Trade Provisions

Provision	Impact
No Forced Source Code Transfer	Protects UK AI startups from IP leakage
e-Signature Recognition	Cuts contract finalization from 6 weeks to 72 hours
Data Flow Framework	Allows UK healthtechs to analyze Indian patient data in Europe clouds

Source: Commenda.io

4. Financial Services: Bridging the City and Mumbai

The FTA locks in India’s 74% FDI cap for insurance—a floor that may rise to 100% by 2027. Prudential PLC’s India Playbook:

• Current Stake: 26% in ICICI Prudential.

• Post-FTA Move: Negotiating majority control using the “automatic approval” pathway.

• Strategic Goal: Capture 15% of India’s $160 billion pension market by 2030.

Regulatory Cooperation Highlights:

• Joint UK-India FinTech Innovation Hub in Gift City.

• Mutual fund passporting under discussion for 2026.

5. Aerospace & Medical Devices: High-Tech Synergies

Tariff Reductions Driving Growth:

• Aerospace: UK’s Rolls-Royce to source ₹420 crore ($50 million) in titanium components from Midhani (India) annually.

• Medical Devices: India’s 5% import duty cut on UK MRI machines boosts GE Healthcare’s Pune plant expansion.

Interview Excerpt – Dr. Harsh Mahajan, Founder, Mahajan Imaging:“The FTA lets us upgrade 30% faster—replacing 1.5T scanners with 3T models from Edinburgh at comparable costs. Patients gain; margins improve.”

6. Cross-Sectoral Enablers: The FTA’s Hidden Wiring

Professional Mobility: Talent Without Borders

The Double Contributions Convention (DCC) allows:

• Cost Savings: UK firms save £4,800/year per Indian secondee on social security.

• Knowledge Transfer: 2,000 UK architects to train Indian counterparts on net-zero building codes by 2026.

Case Study – Grimshaw Architects (London):

• Project: Bengaluru Metro Phase 3 design collaboration.

• DCC Impact: Saved £2.1 million in payroll taxes for 45 transferred staff.

7. Government Procurement: A $38 Billion Opportunity

UK firms gain preferential access to India’s infrastructure tenders:

• First-Mover Advantage: Balfour Beatty shortlisted for ₹9,200 crore ($1.1 billion) Chennai-Bengaluru expressway contract.

• SME Portal: 1,200 UK suppliers registered on India’s procurement platform within 30 days of FTA signing

Exclusions and Sensitive Sectors

Both countries have protected sensitive sectors. India has excluded dairy, cheese, apples, poultry, eggs, pig meat, and sugar from tariff reductions, shielding domestic farmers from low-cost imports. The UK has similarly excluded sugar, milled rice, pork, chicken, and eggs from its tariff cuts, ensuring market protection in these areas.

Services, Digital Trade, and Regulatory Cooperation

The agreement also includes provisions for trade in services, digital trade, and regulatory cooperation. UK businesses in covered sectors will not face restrictions such as limits on the number of businesses able to supply a service, nor will they need to set up a company in India or be resident in India to supply services. This ensures that UK businesses in a number of services sectors have greater certainty and will not be disadvantaged compared to domestic Indian competitors.

However, some commentators have noted a “lack of progress” on trade in services, and the Law Society described the failure to include legal services in the agreement as a “missed opportunity”.

Economic Impact and Projections

The UK government projects that the FTA will increase bilateral trade by £25.5 billion annually in the long run and boost UK GDP by £4.8 billion each year. UK wages are expected to rise by £2.2 billion annually as a result of the agreement

For India, the agreement supports its ambition to become the world’s third-largest economy by 2028 and is expected to generate new avenues for employment, raise living standards, and improve overall well-being. The FTA is anticipated to double bilateral trade from its current level of approximately £42.6 billion ($60 billion) to $120 billion by 2030.

According to a report by CareEdge, the FTA is expected to boost bilateral trade by around 15% annually until 2030, with the agreement set to take effect within a year of signing. Currently, trade with the UK constitutes about 2% of India’s total trade volume—a figure that is expected to rise significantly as the agreement is implemented.

Investment Opportunities and Challenges

The FTA is expected to lay a solid foundation for increased foreign direct investment (FDI) between the two countries. While there is no immediate spike in FDI, the relaxation of duties is anticipated to encourage investment in both directions, particularly in sectors such as textiles, gems, jewelry, and engineering goods for India, and in alcohol, autos, and cosmetics for the UK.

However, the agreement also presents challenges. Indian enterprises in sectors such as automobiles and alcoholic beverages will face increased competition from UK imports. There will be a period of adjustment as businesses adapt to the new tariff regime.

People-to-People Ties and Strategic Partnership

Beyond economics, the FTA is expected to deepen people-to-people ties and strengthen the Comprehensive Strategic Partnership between the UK and India. The agreement is seen as a catalyst for innovation and job creation in both countries, with both leaders highlighting its role in fostering a new era of collaboration and prosperity.

Prime Minister Modi invited Prime Minister Starmer to visit India, and both leaders agreed to remain in close touch.

Voices from the Ground: Industry Leaders Weigh In

1. Scotch Whisky Association CEO Mark Kent:

“The tariff drop from 150% to 40% over a decade is transformative. We’re targeting 200 million new Indian consumers via partnerships with Amrut Distilleries for blended malts.”

2. Nasscom President Debjani Ghosh:

“The mutual recognition of IT qualifications will reduce UK project costs by 18%. Expect 50,000 Indian tech visas under the new mobility framework.”

Road Ahead: Navigating Challenges

While the FTA presents vast opportunities, businesses must mitigate risks:

•        Compliance Complexity: Differing ESG standards may delay textile shipments initially.

•        Geopolitical Sensitivity: India’s dairy exclusion remains contentious with UK farmers.

•        Tech Transfer Balancing Act: Indian startups urge safeguards against “digital neo-colonialism.”

Conclusion: A Partnership Reimagined

The UK-India FTA transcends traditional trade metrics, weaving together supply chains, talent pools, and digital architectures. As Tata Steel’s Port Talbot plant sources Gujarat-made graphene and Manchester AI firms train models on Bengaluru-labeled data, this agreement emerges as a blueprint for Global North-South collaboration. Its true measure lies not in immediate GDP bumps but in its vision—a decolonized, reciprocal partnership ready for the Asian Century.

As Prime Minister Modi and Prime Minister Starmer have both emphasized, this is not just a trade deal—it is a historic milestone that will shape the economic and strategic landscape for years to come.

Sujit S. Nair is the Chairman of Europe India Centre for Business and Industry

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.eij.news)