India-U.K. Free Trade Agreement (FTA): Prospects and Challenges

Background & History

• India and the UK share deep historical ties and a growing economic partnership.
• Post-Brexit, the UK prioritized stronger bilateral trade ties; India was identified as a key partner.
• In May 2021, both countries launched the Enhanced Trade Partnership (ETP) and Roadmap 2030, setting the stage for a full-fledged FTA.
• Goal: Double bilateral trade by 2030 and deepen the Comprehensive Strategic Partnership.
• Formal negotiations began in January 2022 in New Delhi (1st round of talks).

Negotiation Journey (2022–2025)

• Negotiations saw 15 rounds by May 2025; initially aimed for conclusion by Diwali 2022, but missed due to complex issues.
• Key UK demands:

  • Steep tariff cuts on automobiles and alcoholic beverages (e.g. Scotch whisky with 150% Indian import duty).

• Key Indian demands:

  • Greater mobility for Indian professionals.

  • Avoidance of double social security payments.

• Sticking points: Rules of origin, digital trade, service standards.
• Political transitions in the UK (3 PMs: Johnson, Truss, Sunak) slowed continuity.
• Rishi Sunak’s leadership brought optimism but did not yield immediate breakthroughs.
• Talks intensified in late 2024–early 2025 under UK PM Keir Starmer (Labour Party).
• Final compromises:

• • India agreed to phased tariff reductions.

  • UK allowed limited work visa facilitation via side agreements.

Current Status (as of May 2025)

• On 6 May 2025, both PMs announced a “deal in principle”.
• Legal vetting and ratification underway; expected implementation by mid/late 2026.
• UK: Requires up to 15 months for legal review + parliamentary ratification.
• India: Needs Union Cabinet approval (no full Parliament vote required).
• Accompanying agreements:

• • Double Contributions Convention: Avoids dual social security payments for up to 3 years.

  • Bilateral Investment Treaty (BIT) under negotiation for investor protections.

Political Implications

• Strengthens India-UK strategic ties and elevates trust.
• Signals India’s growing capability in bilateral trade negotiations.
• UK sees this as a post-Brexit flagship deal (most significant since leaving EU).
• Bipartisan UK support (started under Conservatives, concluded under Labour).
• Enhances India’s profile in G7, Quad, and Indo-Pacific partnerships.
• Indian diaspora (living bridge) expected to benefit from mobility provisions.
• Promotes Indo-UK collaboration in defense, climate, and technology.

Economic Implications

• Expected to boost bilateral trade by £25.5 billion/year and UK GDP by £4.8 billion.
• India to gain improved market access, supporting its export-led growth.
• Reductions in tariffs will:

  • Lower consumer prices (e.g., whisky, cars, chocolates).

  • Benefit UK exports to India.

  • Improve access to Indian textiles, spices, and electronics in UK.

• Customs and standards cooperation to reduce non-tariff barriers.
• Greater investor confidence due to predictable market access.
• Opens up India’s ₹38 lakh crore government procurement market to UK bidders.
• FTA designed with safeguards: phased implementation & quotas to protect sensitive sectors.

Sectoral Impacts

1. Automobiles

• India to reduce auto tariffs (from >100% to 10%) under quota-based system.
• Helps UK luxury carmakers; e.g., Jaguar Land Rover (Indian-owned) gains cheaper access.
• Benefits Indian consumers with more affordable imported vehicles.
• Encourages joint ventures and local assembly units in India.

2. Agriculture & Food

• UK: Gains access to Indian market for lamb, pork, dairy, and alcohol.
• India: Boosts exports of tea, rice, spices, seafood.
• Eases UK tariffs on Indian marine and processed food.
• Sanitary/phytosanitary standards cooperation included.
• Sensitive items (e.g., Indian dairy) likely protected.

3. Services

• Covers IT, digital trade, legal, finance, consulting, and professional services.
• Ensures:

• • No new discriminatory barriers.

  • Mutual recognition of professional qualifications.

• UK financial firms gain easier access in India.
• Indian professionals (e.g., chefs, yoga teachers, IT specialists) get visa facilitation.
• Double Contributions Convention: prevents double social security payments.
• NASSCOM welcomed the move as a boost for the tech industry.

4. Pharmaceuticals & Healthcare

• Facilitates smoother approval for Indian generics in UK.
• Streamlines regulatory dialogue and boosts availability of affordable medicines in UK.
• UK pharma firms gain stronger IP protection and easier access to Indian market.
• Opens Indian government procurement to UK medical technology firms.
• Encourages R&D partnerships in biotech and pharma innovation.

5. Investment

• FTA expected to drive new investments due to tariff certainty.
• Indian firms to expand in UK (2nd-largest investor by project count).
• UK firms to scale up operations in India – sectors: clean energy, fintech, retail.
• “Make in India” incentives apply to UK firms with local production.
• BIT to legally protect cross-border investors from unfair treatment.
• Anticipated rise in technology transfer, joint ventures, and cross-border projects.

Conclusion

• India-UK FTA is a historic trade milestone, concluded after 3+ years of intense negotiations.
• As of May 2025, the agreement is finalized in principle, with signing and implementation due by 2026.
• Politically, it reflects growing trust and strategic alignment.
• Economically, it will drive trade, investment, and job creation.
• Sectorally, the deal unlocks new opportunities across automobiles, agriculture, services, and pharma.
• Challenges remain in implementation and adjustment, but the FTA sets up joint mechanisms to address them.
• A model for India’s future FTAs, the India-UK pact reflects a balanced approach to globalization—assertive yet pragmatic.