In today’s Finshots, we break down what India’s new free trade agreement with the UK really means and what’s at stake.

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The Story

India and the UK have finally wrapped up talks on a long awaited free trade agreement (FTA). And it’s got everyone buzzing. So let’s skip the formalities and get straight into what it actually means.

See, countries trade goods and services with each other all the time but that doesn’t mean it’s always easy or cheap. Governments often slap tariffs and other trade barriers to protect local businesses. But if two countries feel they can both gain from a closer relationship, they sit across the table and make a deal to ease those barriers.

That’s basically what an FTA is ─ less red tape, fewer tariffs and more open trade between two nations.

And this India-UK FTA has been cooking for over three years now. So why have one at all and why do it now?

To understand that from India’s perspective, let’s rewind a bit. Back in the early 1600s, the British East India Company came to India for trade. Over time, that turned into colonial rule where India mainly supplied raw materials to the British, while their goods flooded Indian markets. The scales were tipped heavily in Britain’s favour.

Fast-forward to modern India and our export game has grown strong since 2004, especially in pharmaceuticals, garments, auto components and IT services. Today, the UK imports more from India than it exports ─ $33 billion in imports vs. $23 billion in exports as of 2024. That gives India a neat trade surplus. And to keep that momentum going, India needs to keep our exports competitive.

That’s where the FTA steps in.

It gives 99% of Indian exports like textiles, auto parts, IT services, pharmaceuticals, gems & jewellery and engineering goods, duty-free access to the UK. On the flip side, India has agreed to reduce tariffs on 90% of UK goods, with 85% of them dropping to zero within ten years. But we’ve kept our guard up where it matters. There’s no tariff cuts on dairy, cheese, apples and other sensitive agricultural items. That way, we protect Indian farmers from cheap imports and unfair competition. 

And all of this is set to double bilateral trade to around $120 billion by 2030.

For the UK, this deal couldn’t have come at a better time. After Brexit, the UK lost seamless access to the EU’s single market. And that hurt their economy. Output dropped by about 5.5% as of mid-2022, compared to if they’d stayed in. So the UK has been hunting for new trade opportunities with fast-growing economies. And India, recently crowned the world’s fifth-largest economy and on track to become third-largest by 2028, fits the bill perfectly.

So yeah, that’s the gist of all the noise around the India-UK FTA.

But what does it actually mean for India’s economy?

For starters, it helps the UK regain some of that lost ground. British cars, whisky, medical devices and manufacturing goods will now have smoother entry into India. Tariffs on cars, for instance, will drop from over 100% to just 10%. That’s huge for British luxury carmakers like Jaguar Land Rover, Bentley and Aston Martin, which might now be slightly more within reach for Indian buyers.

Sure, this might worry Indian automakers. But the deal includes phased cuts and strict quotas, so our domestic players have time to adjust. Plus, Indian car parts makers and OEMs (original equipment manufacturers) now get easier access to the UK market, giving a leg up to our “Make in India” ambitions.

Then there’s the massive boost to the textile sector. 

Indian textiles and apparel exports previously faced up to 12% duties in the UK. That’s now gone. It’s a shot in the arm for exporters, who have been trying to reduce their dependence on traditional markets like the US. Especially now, with higher tariffs that the US has slapped on garments it imports from India, things have started to get a bit unpredictable. Sure, even with duties soaring over 50% on certain knitted garments, Indian textiles haven’t taken a major hit yet. But here’s the thing. Other countries like China are facing even steeper tariffs, so India’s products naturally look more competitive. Exports of things like knitted clothes, bedsheets and curtains could grow by 3–4%, mainly because India’s already the second-biggest supplier of these goods to the US, just behind China.

But we’d be foolish to get too comfortable. Global trade winds shift quickly, and it’s always wise to have backup plans, right?

That’s where the FTA helps. It opens the door to a fresh, high-potential market. With duties out of the way, Indian textiles instantly gain an edge over products from countries like Bangladesh that don’t have similar FTAs with the UK. And in the world of global trade, even a small cost advantage can mean a big win.

The agriculture and food sector gets a piece of the pie too. 

Indian tea, spices and ready-to-eat foods will now find it easier to reach UK shelves, helping Indian brands build a global presence. The gems and jewellery sector is set to sparkle as well. With tariff reductions, India’s exports in this segment are expected to hit $2.5 billion in just two years and total bilateral trade in gems and jewellery could double to $7 billion.

And, all these big numbers mean something even bigger for people on the ground.

Jobs.

How’s that, you ask?

Just think about it. SMEs, especially in rural and semi-urban areas, will find new export opportunities and better margins. These businesses already employ millions, and a boost in exports means more production and more hiring. Textile hubs like Tiruppur and Surat will benefit, as the UK will become a buying hub for the entire European market. Even smaller clusters across India could see economic growth.

And women, who form a large part of the textile workforce, could see more job opportunities as factories expand to meet new demand. So it’s not just economic gain. It’s social progress too.

The IT sector is another big winner. The FTA is expected to ease the entry process for Indian IT professionals and firms into the UK. Around 60,000 Indian tech professionals stand to benefit every year. Big players like TCS, Infosys, HCL Tech, Wipro and Tech Mahindra could see smoother operations and better client access in the UK.

And a crucial part of this job-friendly setup is the Double Contribution Convention.

In simple terms, this stops Indian workers in the UK from paying social security contributions in both countries. Right now, Indian workers on short-term UK assignments must pay into the UK’s National Insurance scheme, even though they also contribute in India through the Employees' Provident Fund Organisation (EPFO). That’s about £500 ($670) extra a year per worker, with no added benefits.

India already has similar agreements with Germany, France and other countries. Workers posted abroad don’t pay into the host country’s system; they just continue with the Indian one. And the new deal brings the UK in line with that. It simplifies life for cross-border professionals and reduces costs for Indian businesses sending talent to the UK.

So yeah, the FTA has a lot going for it.

But then here’s a concluding thought. Everyone’s cheering the deal for boosting jobs and exports, but it could come with some collateral damage too.

Take whisky, for example. India is the world’s largest market for Scotch whisky by volume. And under the FTA, India will slash its import duty on Scotch from 150% to 75% immediately, and further down to 40% over ten years. That means a bottle that currently costs ₹5,000 could soon sell for ₹3,500 or less. That’s undoubtedly good news for Scotch lovers. But it also means that Indian-made liquor may struggle to compete, just when it’s beginning to find its footing.

Is that a risk worth taking? Probably. It could be a small trade-off for bigger gains.

We’ll just have to wait and see how much of this promise turns into reality. 

Until then…

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