India clinches free trade deal with UK
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Hindustan Times | 7 May 2025
India clinches free trade deal with UK
By Rezaul H Laskar, Rajeev Jayaswal
India and the UK on Tuesday clinched a free trade agreement (FTA) that will boost Indian exports of textiles, leather and engineering goods and cut levies on British whisky, automobiles and medical devices, and which Prime Minister Narendra Modi said, would catalyse trade, investment and job creation.
The deal between the world’s fifth and sixth largest economies was finalised three years after Modi and his former British counterpart Boris Johnson set a target of concluding the FTA by October 2022. Since then, the negotiations were affected by differences on a range of issues, including tariffs on alcohol and automobiles and mobility of Indian professionals, and political turmoil in the UK.
The deal, concluded amid global economic turmoil triggered by US President Donald Trump’s tariff regimes, could be a precursor to similar agreements with other nations, including the US. India is currently negotiating FTAs with the EU, the US, Oman, Peru and New Zealand.
The FTA is Britain’s most significant trade deal since its exit from the European Union (EU) in 2020.
Modi announced the FTA’s finalisation after a phone call with British Prime Minister Keir Starmer, saying in a social media post: “In a historic milestone, India and the UK have successfully concluded an ambitious and mutually beneficial Free Trade Agreement, along with a Double Contribution Convention.
“These landmark agreements will further deepen our Comprehensive Strategic Partnership, and catalyse trade, investment, growth, job creation, and innovation in both our economies. I look forward to welcoming PM Starmer to India soon.”
Starmer described the FTA as a “huge economic win” for the UK and thanked Modi “for his decisive leadership in getting the deal over the line”, according to a statement from 10, Downing Street. Starmer emphasised the “need to go further and faster to get things done” and both leaders noted the deal is the “biggest the UK has done since leaving the EU, and the most ambitious India has ever done”.
“Strengthening our alliances and reducing trade barriers with economies around the world is part of our Plan for Change to deliver a stronger and more secure economy here at home,” Starmer said, in an apparent reference to the economic turmoil created by the US administration’s tariff policies.
The FTA is an “ambitious deal” to boost jobs, exports and national growth while allowing 99% of Indian exports to benefit from zero duty, India’s commerce ministry said in a readout. It will open export opportunities for labour-intensive industries such as textiles, marine products, leather, footwear, sports goods, toys, gems and jewellery, and other important sectors such as engineering goods, auto parts and engines and organic chemicals, it said.
The deal will substantially improve the competitiveness of Indian goods in the UK vis-a-vis countries such as Vietnam and Bangladesh, officials said. Sensitive items such as dairy and agriculture products, including apples and cheese, were excluded from the offer, they said.
The FTA will also boost trade in services, such as IT and ITeS, financial and professional services, other business services and educational services, while the Double Contribution Convention will exempt Indian workers temporarily in the UK and their employers from social security payments for three years, thus making Indian service providers more competitive in Britain, the statement said.
This exemption will result in savings of around 20% of salaries and is expected to benefit more than 60,000 employees in the IT sector alone, while the total benefits to Indian companies and employees is expected to exceed ₹4,000 crore, officials said.
The deal envisages “stronger strategic alignment and greater global mobility for aspirational young Indians”, one of New Delhi’s key demands. It will ease mobility for professionals such as contractual service suppliers, business visitors, investors, intra-corporate transferees, and independent professionals such as yoga instructors, musicians and chefs.
The British government said there wouldn’t be any change in its points-based immigration policy because of the deal.
The breakthrough in the FTA negotiations followed two back-to-back visits to the UK last week by commerce minister Piyush Goyal for meetings with British trade secretary Jonathan Reynolds to push the talks across the finish line. The two sides relaunched negotiations two months ago after a hiatus of about a year because of general elections in both countries.
Goyal, already credited with three major trade deals with Australia, the United Arab Emirates and the European Free Trade Association since 2022, attributed the “historic milestone” to Modi’s guidance and leadership. He said, “The India-UK FTA, along with a Double Contribution Convention, is a bold, future-ready step that will unlock growth, jobs, and innovation – accelerating our journey towards Viksit Bharat 2047. A true reflection of India’s rising global economic stature.”
The Indian government also said it secured “significant commitments” on digitally delivered services for Indian suppliers, especially in professional services such as architecture, engineering, computer-related services and telecommunication services.
“India has ensured that non-tariff barriers are suitably addressed to ensure free flow of goods and services and that they do not create unjustified restrictions to India’s exports,” the commerce ministry’s statement said.
The British government said there will be reductions on 90% of Indian tariff lines, with 85% of them becoming fully tariff-free within a decade. Indian tariffs on British whisky and gin will be halved from 150% to 75% before being cut to 40% by the 10th year of the deal, while automotive tariffs will go from more than 100% to 10% under a quota, it said.
Other British goods to benefit from reduced tariffs include medical devices, aerospace products, cosmetics, lamb, salmon, electrical machinery, soft drinks, chocolate and biscuits. The UK will also liberalise tariffs on Indian clothes, footwear and food products, including frozen prawns.
Indian officials didn’t divulge finer details of the deal. According to experts, more than 60% of Indian merchandise already enters the British market at zero duty. The experts said a quota system will be in place for certain items to check import influx of automobiles and whisky.
“Real benefits will accrue to only 40% of Indian exports such as textiles and garments, where the average tariff is about 4% to 10% depending on items. This may make Indian products more competitive than Vietnam and Sri Lanka. But gains and losses can be assessed only after the entire deal and tariff commitments are made public,” one expert said, requesting anonymity.
Two-way trade between India and the UK was worth about $57 billion (£42.6 billion) in 2024, and the deal is expected to increase trade by a further $34 billion (£25.5 billion) by 2040. According to the UK government’s latest data, India was Britain’s 11th largest trade partner in 2024 and accounted for 2.4% of total UK trade.
India’s exports to the UK were worth $34 billion (£25.5 billion) in 2024 (an increase of 10.1% compared to the figures for 2023), and UK exports to India amounted to $22.8 billion (£17.1 billion) in 2024 (an increase of 5.8% compared to the figures for 2023).
The deal was welcomed by trade lobbies, with CII president Sanjiv Puri saying: “This transformative accord reflects our shared commitment to deepening economic ties, bolstering technology collaboration, diversifying global supply chains, and fostering a more business-friendly environment.”
Assocham president Sanjay Nayar said the FTA and the Double Contribution Convention are a “win-win for both nations” and will foster trade, investment and innovation. “We congratulate the Indian and UK governments for taking this initiative in the ever-evolving global trade and investment scenario,” he said.
Richard Heald, chair of the UK-India Business Council (UKIBC) said the trade deal “reflects the deep trust, shared values and mutual ambition” that define the bilateral relationship. “Our members and clients are excited about the opportunities that will now open up. UKIBC remains committed to supporting businesses to navigate the new framework and fully realise the benefits of this historic agreement,” he said.
HSBC group chairman Mark Tucker said: “At a time of heightened global uncertainty, the need for trusted partnerships is clear. There is huge future potential for both India and the UK through this ambitious economic agreement.”
Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI) noted that the FTA marks a strategic deepening of the $42-billion trade relationship, with real gains for Indian sectors such as textiles, footwear, carpets, cars and marine products, which currently facing UK tariffs of 4% to 16%. “But the deal’s true test lies in how the UK’s Carbon Border Adjustment Mechanism (CBAM) is handled. If Indian exports still face CBAM levies while UK goods enter India duty-free, it risks turning a balanced FTA into a one-sided bargain.”
