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Abhiruchi Chowdhury
14 August 2025 |
From 23-24 July, Prime Minister Narendra Modi embarked on a visit to the UK where he met his British counterpart Keir Starmer and King Charles III. During the visit, the two countries inked the Free Trade Agreement, which is officially known by the name of Comprehensive Economic Trade Agreement. Further, the two sides also signed the India-UK vision 2035 framework which provides a blueprint for enhancing bilateral collaboration.
What is the India-UK FTA all about?
The Comprehensive Economic and Trade Agreement aims to slash the tariff rates enforced by the two countries on each other’s exports and thereby increase the bilateral trade volume and enhance the ease of doing business. The recently signed agreement took close to three to be finalized and it is UK’s largest signed bilateral trade accord since Brexit. As part of the agreement, India would decrease import duties for the UK on 90 per cent of tariff lines, whereas the UK would be removing duties on 99 per cent of tariff lines for India. The deal is expected to help the two countries in doubling the bilateral trade to USD 112 billion in the next five years.
Which industries are set to benefit from the FTA?
For India, its clothing and home textile industries are expected to see gains from the signing of FTA. Tariffs up to 12 per cent on import of garments and home textiles in the UK from India would be removed. This would mean that Indian textile goods will be at par with the Bangladeshi and Pakistani garments, which do not face any import tariffs in the UK. As a result, traditional textile items from India such as Bhagalpur silk, Pashmina shawls, Baluchari sarees, Tiruppur knitwear could see an increased presence in the markets of the UK.
In addition to that, jewelry and leather items would not face any import duties in the UK. The gem and jewelry exports from India could climb to USD 2.5 billion by 2028, which currently amounts to USD 941 million. Also, exports of agricultural items such makhana, shahi litchi, araku coffee, saffron are set to gain from the deal.
The deal would also benefit Indian citizens working in the UK by exempting them from paying “social security payments” for three years. This measure would bring some relief to the Indian citizens who earlier used to pay social security in both the countries. This, however, does not mean that UK companies would receive some sort of tax advantage while hiring Indian employees instead of British employees.
For UK, it is anticipated that the agreement would lead to an increase in country’s GDP by GBP 4.8 billion and its firms would be able to save close to GBP 900 million annually. The two major sectors benefitting from signing of FTA are its large vehicles manufacturing industry and alcoholic beverage sector. The import duties on large diesel and petrol vehicles would be slashed from a previous maximum of 110 per cent to 10 per cent in the next five years. Tariffs on alcoholic products such as Scotch and whiskey imported from UK’s would be brought down to 75 per cent from the current 150 per cent, in the next 10 years. Further, after the singing of FTA, UK’s companies will be permitted to take part in government’s procurement tenders and would face same rules and regulations as that of Indian companies.
What is the “India-UK vision 2035”?
According to the document, India and UK would look to establish state of the art technology and research which would emphasize upon critical minerals, Artificial Intelligence, and semiconductors. Both the countries would engage in joint efforts to combat terrorism, extremism and radicalization of fringe groups. The two countries would also work together for unfolding new weapons system under a 10-year defence partnership plan. In addition to that, UK and India would collaborate in pushing for UN Security Council reforms, and in other multilateral forums such as WHO, IMF, etc
What are the possible fallouts of the FTA?
Food and beverage items such as chocolates, biscuits, and soft drinks which are imported from the UK are set to get cheaper in India after the signing of the FTA. The existing regulations for the sale and advertisement of junk food items in India is very weak. Cases of inaccurate advertisements is not uncommon, which often go unnoticed or in some cases unpunished. Thereby, sale of UK made junk food items without a strong regulatory framework poses a severe risk to the public health. Further, India was not able to get impunity for its goods from UK’s forthcoming Carbon Border Adjustment Mechanism. After the enforcement of the mechanism, the carbon intensive industries in India would find it difficult to get access to UK’s market.
For the UK firms, it would be extremely difficult to compete with Indian companies in the public procurement deal. This is because India follows a L1 procurement protocol in which the lowest quoter gets the contract. Thus, unless UK firms manage to bring down their costs to the level of Indian companies, they will not be able to reap benefits from this part of the FTA. Also, under the agreement UK firms are not permitted to take part in the procurement by Indian Railways and handloom industry. Further, they cannot take part in the procurement process of arms, ammunition, food and agricultural support programs.
What next for India and the UK?
The signing of Comprehensive Economic Trade Agreement signifies New Delhi’s departure from viewing the UK as a declining power and instead seeing it as an equal partner, thereby putting a solid foundation for further enhancement of cooperation between the two countries. However, the anti-immigration sentiment in the UK, prevents the government to take steps for increasing people to people ties. The relations between the two countries cannot reach to its potential if the focus is only on trade and industrial cooperation, and not on enhancing people to people ties. The progress made through increasing bilateral trade and cooperation can only sustain if there is a mutual trust between the common people of the two countries towards each other.
About the Author
Abhiruchi Chowdhury is Research assistant at NIAS.
