India and the UK on Tuesday finally concluded a Free Trade Agreement (FTA) that had been under negotiation for the past three years. The deal opens up the UK market for Indian goods and services by eliminating tariffs on approximately 99% of tariff lines, covering nearly 100% of the trade value. Labour-intensive sectors in India — such as textiles, footwear, carpets, automobiles, and marine products — which currently face UK tariffs ranging from 4% to 16%, are expected to be among the biggest beneficiaries.
“The FTA will have a positive impact on manufacturing across labour- and technology-intensive sectors. It opens up export opportunities for industries such as textiles, marine products, leather, footwear, sports goods, toys, gems and jewellery, as well as key sectors like engineering goods, auto parts and engines, and organic chemicals,” said a statement from the Ministry of Commerce.
The deal is expected to significantly enhance the competitiveness of Indian goods in the UK market compared to other countries.
Under the agreement, India will also reduce duties on 90% of tariff lines, with 85% of UK imports becoming duty-free over the next 10 years. British exports such as whisky, gin, cars, aerospace components, and food items will see substantial tariff reductions. Whisky tariffs, for example, will fall from 150% to 40%, while automotive tariffs will drop to 10% under a quota system. Currently, auto imports into India attract a 100% tariff.
According to a UK government statement, India’s tariff cuts will amount to $550 million in the first year and are projected to reach approximately $1.2 billion after 10 years.
There are other concessions as well for UK businesses under the treaty. For the first time, UK businesses will have guaranteed access to India’s procurement market, covering goods, services and construction. UK businesses will be granted brand new access to approximately 40,000 tenders with a value of at least £38 billion a year, a UK government statement said.
Commerce ministry officials noted that India secured a favourable deal, not only in terms of tariff reductions for most Indian goods but also by excluding sensitive items like dairy products, apples, and cheese from any duty concessions, thereby protecting domestic farmers.
One of the most contentious issues in the negotiations — social security payments — also saw a breakthrough. India has secured a three-year exemption from the UK for its professionals, meaning they will not have to make social security contributions for up to three years. This move is expected to significantly reduce employment costs.
According to commerce ministry sources, this exemption could save Indian professionals in the UK around 20% of their salaries, benefiting more than 60,000 employees in the IT sector alone. “The overall savings for Indian companies and employees from this exemption could exceed ₹4,000 crore,” a commerce ministry official estimated.
India also secured significant market access commitments in digitally delivered services, particularly in professional fields such as architecture, engineering, computer-related services, and telecommunications.
Though India has managed to get commitments from the UK government that non-tariff barriers are suitably addressed to ensure free flow of goods and services and that they do not create unjustified restrictions to India’s exports, experts feel the deal’s true test lies in how the UK’s Carbon Border Adjustment Mechanism (CBAM) is handled.
“If Indian exports still face CBAM levies while UK goods enter India duty-free, it risks turning a balanced FTA into a one-sided bargain. Let’s hope this elephant in the room wasn’t ignored,” says Ajay Srivastava, founder, GTRI.
