After over three years of negotiations, India and the United Kingdom have finalized a landmark Free Trade Agreement (FTA), marking a significant milestone in their bilateral relations. This comprehensive deal, concluded in May 2025, is poised to reshape trade dynamics between the two nations, aiming to boost bilateral trade by £25.5 billion (\$34 billion) annually by 2040.
Key Provisions of the Agreement
The FTA encompasses a broad spectrum of trade and economic activities, including goods, services, investments, and intellectual property rights. One of the most notable aspects is the substantial reduction in tariffs on various goods. For instance, Indian duties on UK whisky and gin will decrease from 150% to 40% over ten years, and car tariffs will be reduced from 110% to 10%, accompanied by export quotas. Conversely, the UK will lower tariffs on Indian textiles, footwear, and food products, facilitating greater market access for Indian exporters.
In the services sector, while the agreement does not alter broader immigration policies, it allows for up to 1,800 visas annually for Indian professionals in cultural sectors such as music, culinary arts, and yoga instruction. Additionally, the pact simplifies customs regulations and provides limited access to Indian government procurement markets, enhancing the ease of doing business between the two countries.
Economic Impact
The agreement is expected to have a significant positive impact on both economies. For the UK, it is projected to increase GDP by £4.8 billion annually by 2040, create jobs, and raise wages by £2.2 billion annually. India, on the other hand, anticipates a boost in exports of pharmaceuticals, textiles, food and beverages, tobacco, leather, footwear, and agricultural items like rice. The deal also opens avenues for Indian digital services in the UK market.
Challenges and Controversies
Despite the overall positive outlook, the agreement has not been without controversy. A provision exempting temporarily seconded Indian workers from UK national insurance contributions has sparked debate, with critics arguing it creates a “two-tier tax” system. Furthermore, the deal excludes financial and legal services, areas where the UK had sought greater access. Issues such as data localization and intellectual property rights also posed challenges during negotiations, reflecting differing regulatory approaches between the two nations.
Strategic Significance
The FTA signifies a strategic shift for both countries. For the UK, it represents the most significant trade deal since Brexit, demonstrating a commitment to forging new trade relationships outside the European Union. For India, the agreement underscores its growing openness to Western markets and sets a precedent for future trade engagements with other major economies.
Conclusion
The successful conclusion of the India-UK FTA after prolonged negotiations highlights the potential for mutually beneficial trade partnerships in a rapidly evolving global economic landscape. As both nations move towards ratification and implementation, the agreement is poised to enhance economic ties and foster greater collaboration across various sectors.
Sources:
- https://www.reuters.com/world/india/india-uk-conclude-talks-over-free-trade-pact-pm-modi-says-2025-05-06/?utm_source=chatgpt.com “Britain and India clinch landmark deal in \”new era\” of trade”
- https://www.financialexpress.com/policy/economy/india-uk-free-trade-agreement-progress-and-challenges/3547373/?utm_source=chatgpt.com “India-UK Free Trade Agreement: Progress and Challenges – Economy News | The Financial Express”
- https://www.theguardian.com/politics/2025/may/06/uk-and-india-agree-trade-deal-after-three-years-of-negotiations?utm_source=chatgpt.com “UK and India agree ‘landmark’ trade deal after three years of negotiations”
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