The India-UK free trade deal is a game-changer for bilateral trade relations

The agreement promises to enhance economic engagement and reshape global value chains. Indian industry contributes extensively to the UK’s economy. According to the Confederation of Indian Industry’s (CII) India meets Britain Tracker 2024 report, the number of Indian companies in the UK was estimated at more than 970, contributing about £1.17 billion to the UK’s corporation tax collections. These organizations were found to employ around 1.1 million people, supporting local economies and livelihoods.

The agreement is poised to build on this strong foundation, offering businesses fresh momentum in both countries to strengthen partnerships, scale up operations and drive mutual growth.

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Geopolitical context: The agreement comes amid global trade uncertainty. With many developed countries around the world looking to diversify their trade and investment partnerships, there is a growing search for reliable and resilient partners. India is positioning itself as a reliable partner through domestic reforms and efforts to emerge as a global manufacturing hub for exports. The trade agreement further signals India’s commitment to stability in trade policy. Also, India is negotiating agreements with other developed markets such as the US and EU that are expected to be equally comprehensive. This agreement may serve as a template.

Coverage of goods and services: The FTA’s ‘Trade in Goods’ chapter reflects India’s strategic approach to tariff liberalization and supply chain integration. India has committed itself to reducing or eliminating tariffs on 90% of UK goods, including phased cuts on key imports like whisky and automobiles, while the UK will eliminate tariffs on 99% of Indian exports, benefiting labour intensive sectors like textiles, food and jewellery. 

This liberalization will not only enhance our competitiveness and consumer choice, but also encourage investment in downstream industries. By easing access to advanced UK components and machinery, the FTA will support the modernization of Indian manufacturing and promote its integration with global supply chains. Additionally, streamlined customs procedures, digital documentation and harmonized standards are expected to reduce friction at borders, improving the efficiency of trade flows.

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With service exports being India’s area of strength and the UK being a services-driven economy, the FTA’s inclusion of a dedicated chapter on services should further strengthen India’s position in the UK. The importance of digitally delivered services will increase. India’s exports of these increased from $92.48 billion in 2015 to $268.96 billion in 2024. Such products or services are relatively less affected by supply chain disruptions and geopolitical tensions. 

The FTA secures significant commitments on digitally delivered services for Indian service suppliers, especially in professional services such as architecture, engineering, computer-related services, fintech, healthcare and telecom services.

A comprehensive agreement: This is India’s most comprehensive trade agreement yet, as it goes beyond bilateral trade in goods and services. As a first, it has chapters on issues like consumer protection, tackling corruption, good regulatory practices, labour, trade and gender equality, and innovation. These additions open new avenues for mutual cooperation. 

There is also a chapter on the environment to boost trade in clean energy and promote recycling for a circular economy. Its chapter on government procurement should please Indian suppliers, which will be able to access public tender opportunities without discriminatory barriers. 

A significant announcement for Indian professionals working for short durations in the UK is their exemption under the Double Contribution Convention from making social security contributions there for three years. This will raise the competitiveness of our service providers. It also shows India’s openness to finding common ground on issues beyond tariffs. This part, however, requires more industry consultations.

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Possible roadmap: The India-UK FTA can serve as a model for future trade negotiations involving comprehensive commitments. India has been cautious in its approach to issues other than tariffs. Therefore, it is important for India to analyse the agreement’s impact, especially in the context of trade and gender, labour, sustainability, government procurement and other issues. Experience with this agreement could be the basis for deciding India’s future commitments, especially for a deal with the EU. 

Negotiators must also address the concerns of Indian industry arising from the EU’s unilateral trade and sustainability measures such as its Carbon Border Adjustment Mechanism, deforestation regulations and Corporate Sustainability Due Diligence Directive.

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Given today’s global focus on the geopolitically important Indo-Pacific region and the adoption of China-plus-one manufacturing strategies by many countries, this trade pact with the UK could be leveraged to build resilient supply chains in India, especially in high-tech and high-value segments. India is a member of the US-led Indo-Pacific Economic Framework and the UK has joined the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. This offers opportunities for complementary business arrangements as ‘friend-shoring’ gains strength amid fast-evolving global trade dynamics.

The author is director general, Confederation of Indian Industry (CII).