India Signs Historic Trade Deal with UK: What It Means for the Two Economies

Posted by Written by Archana Rao Reading Time: 7 minutes

The India–UK Free Trade Agreement (FTA), widely recognized as one of the most comprehensive post-Brexit trade deals, establishes a historic milestone in bilateral economic ties and provides a boost to India-UK trade.

Indian Prime Minister Narendra Modi and UK Prime Minister Keir Starmer signed the much-anticipated Free Trade Agreement (FTA) in London on July 24, 2025. This marks India’s first major FTA in over a decade and the UK’s fourth since its exit from the European Union (EU) in 2020.

India and the UK finalized the trade pact on May 6, 2025, following over three years of negotiations. Under the agreement, both countries aim to increase annual bilateral trade by £25.5 billion (US$34.5 billion) and have committed to doubling trade to US$120 billion by 2030, with an additional US$40 billion projected by 2040.

Seizing the benefits under the India-UK FTA

The India-UK FTA is expected to deliver wide-ranging economic advantages by expanding trade in goods and services. Beyond market access, the pact aims to promote professional mobility, strengthen regulatory cooperation, and boost cross-border investment. India seeks to scale up its exports and accelerate growth in key sectors, while the UK secures valuable entry into one of the fastest-growing consumer markets in the world.

India–UK Free Trade Agreement: Benefits

Category

India’s gains

UK’s gains

Export sectors

Tariff elimination for textiles, apparel, gems, jewelry, leather, machinery, auto parts, pharma, agri-products, chemicals, processed foods, and marine products.

Expected 20–40 percent rise in exports in key sectors.

Duty-free access for 64 percent of exports to India.

Key gains in alcoholic beverages, cosmetics, processed food, and digital services.

Tariff impact

Zero or reduced tariff for 99 percent of Indian exports to the UK.

Stronger position for India vs. other leading export markets such as Bangladesh, Vietnam, and China.

Average Indian import tariff on UK goods drops from 15 percent to 3 percent.

Reduction in Scotch whisky tariffs from 150 percent to 30 percent in 10 years.

MSME and regional growth

Export boost in leading manufacturing clusters in Tiruppur, Surat, Ludhiana, Pune, Chennai, Gujarat, West Bengal, Assam, etc.

Market access for UK brands like Diageo, Jaguar, Land Rover, and Aston Martin in India.

Professional mobility

Mutual recognition of professional qualifications. Visa relaxation and social security waivers, saving of INR 40 billion (US$462.88 million).

The UK services sector gains 60,000 Indian professionals, filling skill gaps in engineering and finance.

Green tech and energy

UK investment in solar, hydrogen, battery technology, and electric vehicle (EV) infrastructure.

Strategic entry into India’s clean energy market.

Agriculture and food processing

Duty-free treatment for 95 percent of agriculture tariff lines. Boost for basmati, spices, tea, seafood, and packaged foods.

Streamlined sanitary and phytosanitary (SPS) regulations.

Marine and fisheries

Duty-free access for 99 percent of Indian marine exports (e.g., shrimp, tuna).

Expands premium seafood import options.

Geographical indications (GI)

Protection for Indian Geographical Indication* (GI) products like feni, toddy, and Nashik wine.

Preferential access to high-end Indian cultural products.

Consumer impact

Access to cheaper UK luxury cars and spirits (in 1–2 years).

Lower prices on Indian textiles, pharmaceuticals, processed foods, and jewelry.

Strategic gains

Access to the EU via UK hubs.

Strengthened digital and defense links.

*GI protection in the India–UK FTA refers to the mutual recognition and safeguarding of products that originate from specific regions and possess unique qualities, reputations, or characteristics attributable to their geographic origin.

Strategic and operational gains under the India-UK FTA

The India–UK FTA unlocks strategic advantages for businesses in both countries. Beyond reducing tariffs, it facilitates smoother customs processes, enhances mobility, and creates new opportunities in government procurement and digital trade. Under the agreement, both countries have committed to transparent and efficient customs procedures. Key measures include the following:

  • Simplified processes for qualified traders, including duty suspension and periodic payment options.
  • Support for digital trade by enabling paperless customs procedures and electronic authentication.
  • A commitment to clearing goods within 48 hours*.

*While this includes provisions against forced source code disclosure and addresses digital spam, it does not mandate unrestricted cross-border data flows. The UK retains the right to negotiate data localization rules if India grants similar terms to other trading partners.

“The India–UK FTA is not merely a tariff-cutting exercise—it is a strategic blueprint for long-term economic alignment between two complementary economies. By securing zero-duty access for 99% of Indian exports, India stands to strengthen its manufacturing base across high-employment sectors such as textiles, agriculture, and pharmaceuticals. On the services side, inclusion of fair treatment clauses and regulatory transparency for Indian firms operating in the UK—particularly in FinTech and financial services—reflects a forward-looking approach to trade in the digital era. This agreement is likely to accelerate supply chain diversification, attract quality investment, and enhance India’s positioning as a global trade partner capable of shaping next-generation economic partnerships.” – Ankur Munjal, Country Director- Dezan Shira & Associates,  India.

These changes are expected to reduce trade friction, instill confidence among exporters, and lower entry barriers for smaller enterprises.

Professional mobility and HR cost efficiency

The FTA maintains existing provisions for short-term business mobility, enabling professionals to travel for work, attend events, or transition between offices. Additionally, a Social Security Convention allows employees seconded for up to three years to contribute only to their home country’s social security system. This exemption is expected to generate significant cost savings for Indian companies sending employees to the UK, especially in sectors such as IT, pharmaceuticals, and consulting.

Government procurement opportunities for the UK

UK companies meeting a 20 percent domestic sourcing threshold will now be eligible to participate in India’s government procurement market, which includes contracts for goods, services, and infrastructure. These firms will be treated as “Class II” local suppliers—on par with Indian bidders. This provision grants British companies access to the INR 4 trillion (US$46.288 billion) market and encourages joint ventures and hybrid supply chain models between Indian and UK businesses.

Insights for Indian businesses: Leveraging the India–UK FTA

The trade deal offers Indian businesses a unique opportunity to expand into the UK market—particularly its lucrative public procurement ecosystem. To fully capitalize on the FTA, businesses must adopt a targeted and compliant approach across supply chains, contracts, workforce deployment, and digital infrastructure.

Strategic planning and contract realignment

Indian companies should reassess their operational and trade frameworks to reflect the new FTA landscape:

  • Map products to tariff schedules to identify which goods benefit from duty reductions and determine immediate market-entry potential.
  • Ensure compliance with Rules of Origin to qualify for tariff preferences and avoid denial of benefits.

Renegotiate international contracts, particularly pricing, Incoterms, and landed cost structures, to account for reduced tariffs and enhanced competitiveness in the UK market.

Tapping into UK public procurement opportunities

With the FTA enabling qualified Indian firms to participate in UK government procurement:

  • Partner with UK entities to meet domestic content requirements and co-bid on government contracts.
  • Use these alliances to gain insights into local procurement frameworks, bid qualification norms, and compliance expectations.

Prioritize documentation accuracy in sourcing declarations, input origin verification, and contract fulfillment to avoid disqualification and build reputational credibility.

Optimizing workforce deployment and cost efficiency

The FTA provides relief on outbound workforce costs through social security exemptions:

  • Eliminate dual contributions by leveraging the India–UK Social Security Convention for employees deputed up to three years.
  • Align employment terms and payroll documentation with exemption criteria to remain audit-ready and compliant.

This can result in significant cost savings, particularly for IT, pharmaceutical, consulting, and professional services firms operating in both markets.

Digital trade readiness and compliance

To maximize benefits from simplified customs procedures and digital trade provisions:

  • Digitize trade documentation and integrate ERP systems for paperless filing and streamlined clearance processes.
  • Train customs and logistics teams on UK-specific digital protocols and 48-hour clearance mechanisms.
  • Ensure data protection compliance by aligning cross-border operations with India’s DPDP Act and the UK’s GDPR, especially for businesses handling customer or employee data across jurisdictions.

UK’s first major deal since 2020 Brexit

Narendra Modi and Keir Starmer in England, on July 24, 2025.

Narendra Modi and Keir Starmer in London, England, on July 24, 2025. Image source: PIB

In a statement released by the UK Prime Minister’s Office on July 24, 2025, officials described the FTA with India as one of the most far-reaching trade deals signed by the UK since Brexit. As part of the agreement, the UK is expected to attract nearly £6 billion in new investment and export opportunities. It is anticipated to generate over 2,200 jobs across the country, with Indian companies expanding their presence in the UK and British firms securing new contracts in the Indian market.

“Our landmark trade deal with India is a major win for Britain. It will create thousands of British jobs across the UK, unlock new opportunities for businesses, and drive growth in every corner of the country, delivering on our plan for change,”– Keir Starmer, Prime Minister, The United Kingdom.

Furthermore, UK government estimates suggest the FTA could add £4.8 billion (US$6.5 billion) to the country’s GDP each year and deliver a total annual wage boost of £2.2 billion (US$3 billion). In addition, consumers are likely to benefit from lower prices and increased product variety, particularly in sectors such as clothing, footwear, and food.

Tariff reductions to boost the UK’s market access into India

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The UK government notes that under the agreement, India’s average tariff on British goods will reduce from 15 percent to 3 percent. This will improve market access for UK exporters of consumer products such as cars, cosmetics, soft drinks, and medical devices. Whisky producers will see immediate benefits, with tariffs dropping from 150 percent to 75 percent and further declining to 40 percent over the next decade, giving UK firms a strong competitive advantage in the Indian market.

Officials also highlighted that key sectors aligned with the UK’s industrial strategy will benefit from the deal. Tariffs on aerospace products—previously up to 11 percent—will be removed entirely. Automotive tariffs will fall from a high of 110 percent to 10 percent under a quota system, while tariffs on electrical machinery will either be halved or eliminated.

According to the UK’s long-term projections, this agreement could increase its exports to India by nearly 60 percent, adding £15.7 billion (US$21.3 billion) by 2040. Meanwhile, bilateral trade is expected to grow by 39 percent, or £25.5 billion (US$34.5 billion) annually, compared to projected figures without the deal.

ALSO READ: India-UK FTA 2025: Strategic Insights for Textile Exporters and Importers

India–UK trade relations: A brief overview

Both countries have maintained a steady and growing trade partnership in recent years. In FY 2024–25, bilateral trade between India and the UK reached US$23.16 billion, increasing from US$21.40 billion in FY 2023–24.

India-UK Trade Relations (Value in US$ Million)

 

FY 2025-26*

FY 2024-25

FY 2023-24

FY 2022-23

India’s exports to the UK

2,172

14,550

12,982

11,458

India’s imports from the UK

1,394

8,607

8,414

8,961

Total

3,566

23,157

21,396

20,419

Source: Department of Commerce, Ministry of Commerce and Industry, GoI.

*Import-export figures for FY 2025–26 are provisional, covering the period from April 1, 2025, to June 30, 2025.

Trade data indicates a positive trajectory, with India consistently maintaining a surplus. As of FY 2024–25, India recorded a trade surplus of US$5.94 billion with the UK. A trade pact between India and the UK is expected to further boost trade volumes and strengthen economic engagement between the two countries.

Conclusion

The India–UK FTA is a transformative step that strengthens economic, strategic, and cultural ties between two major global economies. For India, the deal offers improved export competitiveness, job creation, and investment inflows in priority sectors, whereas for the UK, it opens up access to a large, young consumer base and a dynamic services market.

By aligning their economic goals with strategic cooperation under Vision 2035, both countries are positioning themselves as key partners in shaping the future of trade, technology, and global governance. While some sector-specific challenges remain, the long-term gains for both sides appear substantial.

(US$1 = INR 86.41)

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