India-UK FTA: A Landmark Deal for Indo-Pacific Convergence

Strategic Insights -

India and the UK have been fostering historical ties, including a Strategic Partnership in 2004 and an Enhanced Partnership for the Future in 2010. The bilateral relationship has strengthened since Brexit, with the two nations upgrading their ties to a Comprehensive Strategic Partnership in 2021 and adopting the Roadmap 2030. The British tilt towards the Indo-Pacific since July 2021 and fast-track FTA negotiations from January 2022 have further accelerated ties. This week, Prime Minister Narendra Modi is visiting the UK, with the signing of the India-UK Free Trade Agreement (FTA) being a key part of the trip.

Key Takeaways:

  • The India-UK FTA is expected to eliminate tariffs on about 99 per cent of Indian exports, benefiting key sectors such as textiles, leather, footwear, sports goods and toys, marine products, gems and jewellery, engineering goods, auto parts and engines, and organic chemicals.
  • India will reduce or eliminate tariffs on 90 per cent of its tariff lines, with 64 per cent seeing immediate liberalisation. The British food and drinks sector is expected to be among the immediate beneficiaries.
  • Tariffs on Scotch whisky and gin will initially drop from 150 per cent to 75 per cent, and further to 40 per cent in over ten years.
  • Automotive tariffs will be cut from over 100 per cent to 10 per cent under a tariff rate quota system, posing a significant challenge to the Indian automobile sector and potentially running counter to the Make in India initiative.
  • The agreement will ease mobility for Indian professionals and provide a three-year exemption from social security contributions in the UK for temporary Indian workers and their employers.
  • The FTA is expected to include a chapter on trade and development cooperation, with both countries agreeing to monitor its impact on other developing nations.
  • India's willingness to engage in new areas marks a policy shift, but may also lead to unforeseen challenges and potentially prompt the EU, US, and others to demand similar terms.

Statistics:

  • India-UK goods trade exceeded $23 billion in 2024-25, with India exporting goods worth around $15 billion.
  • Bilateral trade in goods and services reached nearly £43 billion (approximately $58 billion) in 2024, with Indian exports to the UK accounting for approximately $35 billion.
  • Both governments hope to double this figure over the next five years under the new deal.
  • The UK-India goods trade is expected to exceed $50 billion by 2029, based on a 10 per cent annual growth rate.
  • The bilateral trade in services reached $14.7 billion in 2020, with India accounting for $5.4 billion of this figure.

Sources:

  • Indian government sources
  • British government data
  • RIS New Delhi
  • Jawaharlal Nehru University
  • IE Online Media Services Pvt. Ltd.
  • Contify.com