FTAs: It is time for India to pause and reassess its trade strategy
Business Standard | 12 May 2025
FTAs: It is time for India to pause and reassess its trade strategy
by Ajay Srivastava, founder of GTRI
India’s trade deal with the United Kingdom, announced on May 6, crosses several long-standing red lines. For the first time in any free trade agreement (FTA), India has agreed to slash car import duties, open up its vast government procurement market to a foreign country, and weaken its patent regime under external pressure — a sweeping shift that signals how far India is now willing to go to close a deal.
While the full FTA text remains undisclosed, publicly available details reveal signs of concern. This write-up flags three key issues.
Automobile tariff cuts: India’s decision to slash car import duties from 100 per cent to 10 per cent — even with quotas — is a first in any trade deal. The cuts also cover electric and hybrid cars where Indian industry is just beginning to grow. India will soon receive requests from the European Union, the United States, Japan, and South Korea, demanding equal or deeper tariff cuts.
Why would global firms invest in Indian factories when they can now sell into India from home countries? Australia tried this path — cutting auto tariffs from 45 per cent to 6 per cent in the 1990s — and lost its car industry within two decades.
India’s auto sector makes up nearly a third of the manufacturing gross domestic product (GDP) and sustains over 40 million jobs, from assembly lines to roadside garages. Big imports will hit this hard.
Government procurement: Covering central ministries, state governments, and public sector units, it is a massive market worth around $600 billion annually, nearly 15 per cent of India’s GDP. Until now, India had wisely kept this space protected by staying out of the World Trade Organization’s Agreement on Government Procurement, allowing programmes like Make in India and Atmanirbhar Bharat to prioritise Indian firms for public contracts.
That protection is now being diluted. After a small opening in the UAE FTA, India has granted far-reaching access to UK firms. Around 40,000 high-value Indian government contracts will now be open to UK companies, covering transport, green energy, and infrastructure sectors. One of the most problematic provisions is that UK firms will be treated as “Class 2” local suppliers if just 20 per cent of their product value originates in the UK. This grants UK firms the same procurement preference previously reserved for Indian suppliers with 20–50 per cent domestic content. It allows them to use up to 80 per cent Chinese or European inputs while still benefiting from local supplier status in India.
UK companies will also have access to India’s central e-procurement portal, making tracking and winning public contracts easier. While this FTA creates a windfall for UK businesses, it severely undermines the policy tools India uses to support its domestic manufacturing and small enterprises.
Weakening of patent laws: India has, for the first time in any FTA, agreed to rules that go beyond its obligations under the WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights. This threatens not only access to affordable medicines within India but also its global leadership as a supplier of generic drugs to developing countries. This move hands over a big win to global pharma giants. We await the legal text to see the complete details.
Other highlights of the FTA: The India–UK FTA is the country’s 15th trade deal. Talks began in January 2022 and concluded on May 6. In the coming months, both countries will finalise the legal text, get government approvals, sign the agreement, and then put it into effect.
The deal aims to improve access and lower trade barriers across 26 areas, including tariffs, goods, services, digital trade, intellectual property, sustainability, and government procurement.
Bilateral trade: In 2024, India’s trade with the UK reached $53.3 billion, with India enjoying a $10.5 billion surplus. India exported $13.5 billion in goods and $18.4 billion in services, while imports from the UK were $8.8 billion in goods and $12.6 billion in services. The UK is also India’s second-largest IT and business services market, after the US.
Tariff concessions: About $6 billion — or 44 per cent — of India’s goods exports, like textiles, footwear, carpets, cars, seafood, and fruits such as grapes and mangoes, will now enter the UK duty-free. These items earlier faced import duties of 4–16 per cent. The remaining $7.5 billion worth of exports — such as petroleum, medicines, diamonds, and aircraft — already enter the UK duty-free, so they won’t get any benefit from the deal.
India will eliminate tariffs on 90 per cent of UK goods — starting with 64 per cent from day one, and phasing in the rest over a decade. UK products like salmon, lamb, chocolates, soft drinks, cosmetics, auto and aircraft parts, machinery, and electronics will benefit from the lowering of India’s high tariffs. There are big gains for UK whisky and gin, where India will cut tariffs sharply from 150 per cent to 75 per cent immediately, and further to 40 per cent over 10 years.
Concessions on services: The UK has offered 1,800 visas per year for niche roles like yoga instructors and classical musicians, while avoiding any firm commitments on the number or duration of business visitor visas, which are crucial for India’s booming IT and professional services sectors. It also refused to reinstate post-study work visas, dashing hopes for Indian students seeking job experience in the UK after graduation. The one notable gain is the Double Contribution Convention, which allows Indian professionals on short assignments to avoid paying into the UK’s social security system for up to three years.
On the other hand, UK firms can now operate in telecom, construction, and environmental services without setting up local offices; UK banks and insurers will be treated on a par with Indian firms; and India has committed to recognising UK professional qualifications in fields like law and accounting, though legal services remain closed.
Broad theme: From the UAE to Switzerland, and now the UK, India’s trade deals are following a pattern — each one pushing deeper into uncharted and high-risk territory. With the EU and US next in line, the pressure is building to open up sectors where India has global leadership — like automobiles and pharmaceuticals — and surrender critical policy space in areas like procurement, patents, and regulation.
If this trajectory continues, India risks trading away not only tariffs but also its economic autonomy. It’s time to pause and reconsider the FTA playbook before the damage becomes irreversible.
