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India and UK signed a Free Trade Agreement after three years of negotiations

Free Trade Agreement (FTA)

A Free Trade Agreement (FTA) is a pact between two or more countries to reduce or remove trade barriers, such as tariffs (taxes on imports) and non-tariff restrictions (like quotas or regulations), to make it easier to trade goods and services.

UK Secure the First FTA with India

Since Brexit in 2020, the UK has been eager to secure trade deals to replace its lost access to the EU’s single market. India, with its fast-growing economy (projected to be the world’s third-largest by 2028, per the IMF), is a massive market for the UK.

US tariffs, which Trump paused for 90 days in 2025, have created global trade uncertainty. India is also negotiating FTAs with the US and EU, but the UK’s deal puts India in a stronger position to demand better terms from Washington and Brussels.

By signing with the UK first, India can use this deal as leverage to extract concessions (like better market access or fewer restrictions) in its negotiations with the US and EU.

Strengthens the India-UK Economic Partnership

The FTA deepens the economic ties that form the core of the India-UK “Comprehensive Strategic Partnership.” Bilateral trade (goods and services) was £42.6 billion in 2024, with India as the UK’s 11th-largest trading partner.

India exported £25.5 billion to the UK and imported £17.1 billion. India is also the UK’s second-largest source of Foreign Direct Investment (FDI), after the US, while the UK is India’s sixth-largest investor.

The FTA will boost trade by £25.5 billion annually by 2040, as per UK estimates. It also builds confidence for cooperation in other areas, like defense, technology, education, and tourism.

This deal highlights India’s status as a dynamic trade hub, mainly after it opted out of the China-led Regional Comprehensive Economic Partnership (RCEP) in 2019. It also helps the UK diversify and shift away from over-reliance on China, which aligns with its “China-plus-one” strategy post-COVID.

Key Goods and Services in the FTA

For the UK:

Whisky and Gin: India will halve tariffs on UK whisky and gin from 150% to 75%, dropping to 40% by year 10. This benefits the UK’s Scotch whisky industry, as India is the world’s largest whisky market. Cheaper prices will boost sales.

Cars: India will cut automotive tariffs from over 100% to 10% under a quota, helping UK carmakers like Jaguar Land Rover (owned by India’s Tata Motors) sell more in India.

Other Goods: Lower tariffs on cosmetics, aerospace parts, lamb, medical devices, salmon, electrical machinery, soft drinks, chocolate, and biscuits will make these UK products more competitive in India.

For India:

Professional Visas: Indian workers, especially in IT and healthcare, will get increased access to the UK market. The deal includes “around 100 new visas” annually for Indian professionals, though India initially wanted larger quotas.

Services Sector: India’s service exports (like IT, software, and healthcare services) will benefit from easier access to the UK, a key area of interest for India since many Indian exports to the UK already face low tariffs.

Double Contribution Convention:

The FTA includes a Double Contribution Convention, which exempts Indian workers in the UK from paying National Insurance contributions for three years (up from one year). This makes it cheaper for Indian professionals and their employers to work in the UK but has sparked criticism from UK opposition parties, who claim it undercuts British workers.

What Does the FTA Mean for India and the UK?

For India:

• Economic Growth: The FTA will create jobs, attract UK investment, and open new opportunities for Indian businesses, especially small and medium enterprises (MSMEs).  
• Global Trade Hub: The deal strengthens India’s position as a trade powerhouse, alongside its FTAs with the UAE, Australia, and Mauritius. It also gives India leverage in talks with the US and EU.
• Service Sector Boost: Indian IT, healthcare, and software professionals will find it easier to work in the UK, boosting India’s service exports.
• Limited Goods Benefit: A Global Trade Research Initiative (GTRI) report notes that India’s goods exports to the UK already face low tariffs, so the FTA’s trade benefits for goods may be modest. The real gains are in services and investment.

For the UK:

• Economic Boost: The UK expects the FTA to add £4.8–5 billion annually to its economy by 2040. Cheaper exports like whisky, cars, and cosmetics will increase sales in India’s massive market.
• Post-Brexit Win: The deal is a major achievement for Starmer’s Labour government, proving it can deliver where the Conservatives failed. It’s been called the UK’s “biggest post-Brexit trade deal.”
• Cost-of-Living Relief: Lower tariffs on Indian imports (like textiles or food) could reduce prices for UK consumers, easing the cost-of-living crisis.
• Criticism: Some UK opposition parties argue the visa exemptions for Indian workers create a “two-tier tax system” that disadvantages British workers.

Bigger Picture

The India-UK FTA is more than a trade deal—it’s a strategic move to deepen ties in a changing global landscape.  

• Strategic Partnership: The FTA strengthens the India-UK Comprehensive Strategic Partnership, covering defense, technology, climate change, and education. It sets the stage for collaboration in critical areas like AI and green energy.
• Global Trade Shift: With US tariffs creating uncertainty, countries are seeking non-US partners. The FTA positions India and the UK as key players in this new trade order.
• Future Potential: Modi and Starmer plan to meet soon to sign off on the deal before parliamentary ratification. This could lead to more agreements, like a Bilateral Investment Treaty.

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Source: 

INDIAN EXPRESS