After more than three years and 14 rounds of negotiations, the United Kingdom and India have finally announced a free trade agreement (FTA). UK Prime Minister Keir Starmer will formally sign the deal on a visit to India later this year. This is the biggest and most economically significant bilateral trade deal the UK has struck since leaving the EU. It will have implications for both businesses and workers.

In 2024, the UK’s trade with India was worth £43 billion—£17.1 billion of exports and £25.5 billion of imports. Government modelling estimates that trade between the nations will increase by as much as 39 percent and the UK’s GDP will expand by £4.8 billion or 0.1 percentage points per year as a result.

India’s economy is growing fast. It is expected to expand by 6 percent annually, becoming the world’s third largest economy by 2028 after the US and China. This certainly makes the deal with the UK very timely.

With a population of more than 1.4 billion and a growing middle class, the country offers huge market potential. Its import demand is predicted to grow by 144 percent between 2021 and 2035. This combination of strong economic growth and increasing numbers of citizens with disposable cash makes a compelling case for the deal.

Both the UK and India have agreed to reduce tariffs under the deal. India will immediately lower its 150 percent tariffs on Scotch whisky and gin to 75 percent, and then to 40 percent within ten years. Tariffs on foodstuffs such as lamb, salmon and cheeses will fall from around 30 percent to zero.

Simplified trade rules, including faster customs processing, reduced barriers such as complex labelling requirements, and enhanced support for small businesses should bring gains for companies. Timely customs clearance will support exports of perishable items like Scottish salmon, where delays reduce the product’s shelf life. Similarly, exporters of things like biscuits and cheese will benefit from streamlined paperwork and be able to compete in India’s growing market.

There will no longer be limits on the number of UK businesses allowed to provide telecommunications, environmental and construction services. And UK businesses will not need to set up a company in India or be a resident in India to supply their services in these sectors.

Once the FTA comes into force, which could take up to a year, the UK will allow 99 percent of Indian imports duty-free access into the UK. The sectors set to benefit most are footwear, textiles and clothing, as well as processed prawns, basmati rice and ready meals. These reductions will mean lower prices for UK consumers, given tariffs on clothing and footwear are 12 percent and 16 percent respectively.

Tariffs on luxury cars will also be reduced from more than 100 percent to 10 percent under quotas on both sides. The FTA locks in zero tariffs on industrial machinery, advanced materials for use in hi-tech industries, and components for electric vehicles. This will position British suppliers inside a manufacturing market ranked the world’s second-most attractive after China.

In terms of workers, there were well publicised fears that the agreement might lead to UK workers being undercut by Indian counterparts. Plans for a so-called “double contribution convention” grants a three-year exemption from national insurance contributions for Indian employees temporarily working in the UK. But this is a reciprocal deal and is likely to apply only to workers who are seconded from one country to the other, so it should not result in UK workers being more expensive to hire.

And although no changes to immigration policy are planned, the FTA will offer easier movement for skilled workers. UK providers of services like construction and telecoms will have access to India’s growing market.

Both countries have committed to encouraging the recognition of professional qualifications. A professional services working group for UK and Indian government officials will provide a forum to monitor and support this initiative.

Timing is everything

Against a backdrop of rising protectionism and geopolitical tensions, the UK-India FTA stands out as a strategic deal. It is also a significant milestone in Britain’s Indo-Pacific “tilt”. This approach gives UK firms a hedge against over-reliance on any single region or country-centric supply chains, to keep trade flowing in the event of more US tariff shocks, for example.

With the US fixation on tariffs, and global supply chains facing continued disruption, securing preferential access to the world’s fastest-growing major economy is a strategic win for the UK. From India’s perspective, the trade deal is aligned with its rise as a “China-plus-one” manufacturing hub (where businesses diversify to ensure they do not invest only in China).

The UK and India share historical ties that are underpinned by cultural, educational and people-to-people links. The UK-India FTA marks a new phase in this relationship, where shared economic interests define a forward-looking partnership between the two countries.

And in terms of its ongoing talks with the EU, India could use the agreement to showcase its willingness to negotiate ambitious trade deals. For the UK, given its own upcoming trade and cooperation talks with the EU, the FTA with India demonstrates that new partnerships can be built while maintaining vital European ties.

-The Conversation

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