India–UK Free Trade Agreement: A New Era of Economic Partnership and Growth

The India–United Kingdom Free Trade Agreement (FTA), signed by Prime Minister Narendra Modi and UK Prime Minister Sir Keir Starmer, marks a historic milestone in bilateral relations between the two nations. This comprehensive trade deal, the first of its kind since the UK’s exit from the European Union, is expected to significantly transform trade dynamics, strengthen strategic ties, and create new growth opportunities across multiple sectors.

PM Modi said these agreements would enhance investment and generate new employment opportunities in both countries. (AP Photo) | Indian Express

Transforming Bilateral Trade through Tariff Reductions

The agreement introduces sweeping tariff cuts that will reshape how India and the UK trade goods. For Indian exporters, the deal promises duty-free access for 99% of tariff lines, spanning critical sectors such as textiles, pharmaceuticals, gems and jewellery, leather, marine products, chemicals, and engineering goods. This unprecedented market opening provides Indian manufacturers and small-to-medium enterprises a much-needed competitive advantage, especially in comparison to regional rivals like Bangladesh and Vietnam.

On the other side, the UK will reduce tariffs on approximately 90% of its exports to India. This includes significant cuts on products deeply embedded in British heritage and industry, such as Scotch whisky, which will see import duties fall dramatically over the next decade. Additionally, electric vehicles, cosmetics, medical devices, chocolates, lamb, and automobiles will benefit from more favorable market access through quota systems. These changes collectively foster a more balanced and reciprocal trade relationship.

Sectoral Impacts: Opportunities for Growth and Expansion

India’s textile and apparel sector is poised for robust growth, thanks to the elimination of UK tariffs ranging between 8 and 12 percent. Production hubs in Tiruppur and Surat, known for their garment exports, are expected to experience a surge in demand, with industry projections estimating export growth of 30 to 45 percent over the coming years.

The gems and jewellery sector also stands to benefit greatly. Indian exporters, particularly from Surat and Jaipur, gain duty-free access to the UK’s substantial market, which imports nearly $1 billion worth of finished jewellery annually from India. Industry experts anticipate that exports could double within two to three years as a result of the agreement.

Pharmaceuticals and chemicals, vital contributors to India’s export basket, will enjoy enhanced market opportunities. Although only 56 tariff lines in pharmaceuticals are currently covered, the removal of duties combined with regulatory alignments will pave the way for a rapid increase in exports to the UK’s $30 billion market.

Engineering goods and auto components, including machinery and petrochemicals, benefit from near-complete elimination of tariffs. This provides a strong boost for India’s manufacturing sector, supporting increased exports to the UK and promoting employment generation.

Other sectors such as leather, footwear, marine products, processed foods, and agricultural goods also gain tariff-free access, reinforcing India’s competitiveness in a diverse range of industries.

Benefits for the UK: Enhancing Market Access and Consumer Choice

The UK gains considerable advantages as well. The tariff reductions enable British businesses to expand their presence in India’s fast-growing market. The steep cut in import duties on Scotch whisky, from 150% down to 75% immediately and eventually to 40%, will enhance the competitiveness of a flagship British export. Electric vehicles, which previously faced a punitive 110% import duty, will now enter India at a significantly reduced 10% duty under established quotas.

Additionally, luxury British brands in cosmetics, chocolates, soft drinks, medical devices, and automobiles will benefit from increased access to Indian consumers. UK small and medium-sized enterprises are also set to gain improved access to India’s substantial public procurement market, valued at around £38 billion annually.

Beyond Trade: Strategic and Social Dimensions

Beyond the tariff reductions, the India–UK FTA includes progressive provisions on professional mobility and social security. Indian professionals, including chefs, yoga instructors, musicians, and information technology specialists, will experience streamlined visa processes, enabling greater workforce mobility and bilateral knowledge exchange.

The agreement also encompasses cooperation on customs procedures, protection of geographical indications, and data governance frameworks. These elements will facilitate smoother trade flows, safeguard intellectual property, and encourage collaboration in technology and innovation.

Economic Outlook and Job Creation Potential

Economists project that this deal will drive a surge in bilateral trade, potentially doubling trade volumes to $120 billion by 2030. The UK economy is expected to benefit from increased wages, higher tax revenues, and substantial tariff savings, while India could see the creation of over 100,000 new jobs, particularly within the textile, pharmaceutical, and engineering sectors. Micro, small, and medium enterprises, as well as the youth workforce in India, are likely to be the most significant beneficiaries.

Conclusion: Forging a Lasting Partnership

The India–UK Free Trade Agreement represents a transformative milestone, fostering a dynamic, mutually beneficial partnership. It opens new avenues for economic growth, employment, and innovation while strengthening diplomatic ties. For India, the deal advances the "Make in India" vision, promoting exports and industrial development. For the UK, it supports a post-Brexit strategy focused on expanding trade with emerging global economies. As both countries move forward with ratification and implementation, this pact sets the foundation for a vibrant future of cooperation and prosperity.

(Sources: Firstpost, Money Control, Indian Express)