India-UK Free Trade Agreement: A Step Towards Stronger Economic Ties

The long-awaited India-UK Free Trade Agreement (FTA) is nearing its finalization, with both nations set to sign the deal by July 2025. Initiated in 2022, this historic agreement is expected to usher in a new era of bilateral trade and investment, marking a significant step forward in the deepening of economic relations between India and the United Kingdom.

This FTA is not just about lowering tariffs—it reflects a broader strategic alignment on trade, innovation, mobility, and sustainability, making it one of the most ambitious deals signed by either country.

What Is a Free Trade Agreement (FTA)?

A Free Trade Agreement (FTA) is a pact between two or more countries to reduce or eliminate trade barriers such as tariffs, import quotas, and export restrictions. FTAs can also extend to cover services, investment regulations, digital trade, and intellectual property rights.

Some FTAs begin with an Early Harvest Scheme, focusing on limited sectors before the broader agreement is finalized.

According to an SBI report, India has already signed 13 FTAs in the last five years with countries such as Mauritius, UAE, and Australia.

Timeline of the India-UK Trade Relationship

• 1991: India begins economic liberalization.
• 2004: India and UK sign a Strategic Partnership agreement.
• 2005: Joint Economic and Trade Committee (JETCO) is established.
• 2011: Bilateral trade crosses USD 20 billion.
• 2013: UK PM David Cameron visits India with a trade delegation.
• 2015: Indian PM Narendra Modi visits the UK.
• 2021: Enhanced Trade Partnership is launched.
• 2022: Formal FTA negotiations begin.
• 2025: India and the UK set to sign the FTA.

Why the India-UK FTA Matters

Announced officially on 6 May 2025, this FTA is projected to:

• Boost India-UK bilateral trade by £25.5 billion annually by 2040.
• Add £4.8 billion to the UK’s economy each year.
• Increase wages by approximately £2.2 billion in the UK.
• Grant UK exporters better access to India’s 1.4 billion-strong consumer base.
• Open up UK’s service economy to Indian firms.

This agreement is poised to benefit key sectors such as manufacturing, services, fintech, education, and mobility.

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Key Features of the India-UK FTA

1. Tariff Reductions

• India to reduce import duties on 90% of UK goods over 10 years.
• UK to eliminate tariffs on 99% of Indian goods immediately.
• Scotch whisky and gin duties cut from 150% to 75% immediately, and to 40% over 10 years.
• Luxury car import duties to drop to 10% for up to 40,000 units annually.
• UK exports like chocolates, medical equipment, cosmetics, and electronics to face minimal duties.

2. Mobility of Skilled Workers

• UK to issue 1,800 short-term work visas annually for Indian chefs, yoga instructors, traditional musicians, IT experts, and healthcare workers.

3. Investment Protections

• Both countries agree to fair treatment of investors.
• India will allow up to 74% FDI in insurance and banking.
• A voluntary mediation mechanism is included for dispute resolution.

4. Digital Trade & Fintech Cooperation

• Encourages cross-border data flows, algorithm transparency, and digital payments interoperability.
• Plans to link India’s UPI with the UK’s real-time payment systems.

5. Trade Facilitation

• Commit to clearing goods within 48 hours and simplifying paperwork.
• Recognition of Geographical Indications (GI) like Darjeeling Tea and Scotch Whisky.
• Trusted traders allowed to self-certify origin, helping MSMEs.

6. Green Growth & Sustainability

• Aligns with India’s 2070 net-zero goal and UK’s 2050 target.
• Cooperation on green hydrogen, offshore wind, and sustainable aviation fuel.
• Green bond listings at GIFT City to fund India’s clean projects.

7. Labour & Environmental Safeguards

• Ensures fair working conditions and sustainable transition without job loss.

8. Dispute Resolution Mechanism

• Step-wise process: negotiation → independent panel → decision in 180 days.
• A UK-India Trade and Investment Council will monitor the agreement and meet twice a year.

Benefits of the FTA for India

• Expanded Market Access: Indian exporters gain preferential entry into the UK market.
• Stronger Services Exports: Especially IT, healthcare, and professional services.
• Enhanced Competitiveness: Indian firms can compete on level ground globally.
• Protection of Sensitive Sectors: With safeguards for agriculture and MSMEs.
• Boost to Employment: Through increased demand and mobility of professionals.
• Push for Digital Growth: Via fintech collaboration and open data standards.

Concerns and Challenges

While FTAs offer benefits, they also come with economic and policy risks:

1. Rising Trade Deficits

Between 2017–2022, India’s exports to FTA partners rose by 31%, but imports surged by 82%, leading to wider trade gaps.

2. Underutilization of FTA Benefits

Only 25% of eligible exports use FTAs, compared to 70–80% in developed economies.

3. Lack of Global Competitiveness

Indian industries face challenges from low-cost manufacturing hubs like ASEAN and Korea.
Examples: Electronics, textiles, and auto components.

4. Inverted Duty Structures

Higher taxes on raw materials than finished goods hurt local manufacturing.

5. Non-Tariff Barriers

Standards, certifications, and environmental rules in Western countries can still restrict Indian goods.

6. Dependence on Global Trade

Heavy reliance on exports increases vulnerability to global disruptions like wars or pandemics.

7. Intellectual Property (IPR) Issues

Tougher IPR rules in FTAs could threaten India’s generic drug industry, raising costs for life-saving

medicines.

FAQs

Q1. When is the India-UK FTA expected to be signed?
The agreement is scheduled for signing by July 2025, after final-stage negotiations.

Q2. What are the key benefits for Indian exporters?
Lower tariffs, access to UK’s services market, simplified trade rules, and faster logistics clearance.

Q3. Will Indian professionals get work opportunities in the UK?
Yes. The FTA provides 1,800 work visas annually for skilled Indian professionals in priority sectors.

Q4. How will this FTA impact small Indian businesses?
MSMEs will benefit from reduced trade costs, simplified certifications, and easier market access.

Q5. What’s the plan for resolving disputes under the FTA?
Through a structured negotiation and arbitration system, with decisions expected within 180 days.

Conclusion

The upcoming India-UK Free Trade Agreement represents more than just a trade deal—it’s a strategic alignment of values, economic goals, and innovation capabilities. With a focus on green growth, digital trade, and fair mobility, it could reshape the landscape for businesses and professionals in both nations.

While challenges remain—from rising trade deficits to global competitiveness—effective execution and awareness can ensure that India gains maximum value from this agreement.

As the world economy continues to shift, India must approach FTAs not just as treaties, but as tools for transformation.

📅 Published on: 01 July 2025
✍️ Author: CS Chhavi Goyal