Story so far: After nearly three years, India and the UK have finally praised this week’s Free Trade Agreement (FTA). Commerce Minister Piyush Goyal said the agreement would set a new benchmark for “equitable and ambitious trade between two large economies.” Although not yet available for sale, the domestic industry welcomed the announcement as concerns about the potential impact on agriculture and small and medium-sized enterprises (MSMES). The deal may be signed in three months and will take more than a year to implement.
Why is this deal important to both countries?
The UK is India’s 16th largest trading partner, and India is the UK’s 11th largest partner. According to the Indian government’s estimates, their bilateral trade is about $60 billion, and India’s trade balance is expected to double by 2030. The new trade agreement assessed by the UK government will add another $34 billion to bilateral trade. The deal comes as the backdrop of global trade rolling up amid uncertainty arising from US President Donald Trump’s tariff regime.
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What are the expectations of FTA?
Although details have not been released yet, the UK government said it would benefit from India’s agreement to impose tariffs on exports of 90% of product categories, with 85% becoming “tax-free” within a decade. Additionally, based on the 2022 price, its assessment estimates that it will save $534 million in tariffs when implementing the transaction. New Delhi, on the other hand, is expected to benefit from tariffs on 99% of its export product category. It expects export opportunities in the fields of textiles, leather, footwear, auto parts, engineering, and gemstones and jewelry to increase. The British government mentioned that tariffs on cars, whiskey and gin limit the departments that Mr Trump’s tariffs suffered. Alcohol drinks from the UK will now be at a 75% tariff rate from the current 150%. This will further drop to 40% within ten years. Tariffs for automobile exports have also been reduced from over 100% to 10%, although with a certain quota, based on the price of conventional combustion engine vehicles and the capacity of electric vehicles.
Regarding services, India has imposed exemptions for temporary Indian workers in the UK and paid three years of social security contributions to employers under the Double Contribution Convention. Immigration was one of the main points of the debate during negotiations with the former Conservative government. The FTA will also seek to remain “transparent” in the visa process and there are no “unnecessary” barriers in professional travel.
How did the domestic industry react?
Indian industry is optimistic about the announcement and expects exports to surge. Textiles are one of the main projects for export to the UK Mithileshwar Thakur, Secretary General of the Promotion Committee on the Promotion of Clothing Exports (AEPC) told Hindus that exports are expected to grow “extendedly”. He said India will now enjoy unrighteous opportunities for British markets such as Bangladesh and Vietnam. In the competition, he clarified that Britain had “little none” imports in the field.
The Indian auto industry believes this will benefit from the deal. CS Vigneshwar, president of the Federation of Auto Dealers Associations (FADA), argued that the FTA will ensure the UK can better use the Premium (vehicle) segment in India, while Indian manufacturers will serve the UK’s mass market. “We don’t want the UK’s mid-term cars to compete with Indian cars because India has lower production costs and labor,” he said.
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In social media posts, Kirit Bhansali, chairman of the Gem and Jewelry Export Promotion Committee (GJEPC), expects the industry’s export growth to grow by $2.5 billion over the next two years, so bilateral trade eventually tripled to $7 billion.
Are you worried?
There are mainly two sectors, namely agriculture and MSMES. Vijoo Krishnan, secretary general of All-India Kisan Sabha, pointed out that the former FTA, together with Sri Lanka, caused the price collapse of similar products produced by Indian farmers such as spices and teas, etc. He also cites the lasting impact of the ASEAN FTA on rubber, which was 230 rupees per kilogram in 2011 and 170 rupees in 2025. “Indian farmers own a small amount of land, many of which are less than five acres. This is not the case in developed countries.” Mr Krishnan further pointed out the World Trade Organization’s debate on the lowest selling price in India. “Given the number of farmers we have, although the amount of subsidies per capita is large, the accumulated subsidies are large. In addition, the WTO also considers the basic prices in the late 1980s,” he detailed, “Since then, the costs have had to be upgraded, and the prices of farmers and the prices of farmers have risen.”
Ajay Srivastava, founder of the India-based Global Trade Research Program, said allowing foreign companies to compete equally in India, which could undermine the policy tools India needs to build local capacity in key sectors such as defense, renewable energy, health systems and infrastructure. “This also threatens the MSME ecosystem that can be viable on protected government contracts,” he observed.
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In terms of public procurement, the UK believes that the FTA will allow its companies to bid for “better terms and get more relevant information to support their bids”. According to Dinesh Abrol, part-time faculty and staff at JNU interdisciplinary research clusters may lead to an increasing dependence on imports.
Another unresolved aspect in the FTA involves the UK’s carbon border adjustment mechanism (CBAM), which will impose a “carbon price” on commodities brought into the country’s greenhouses. This is especially the result for India’s aluminum and steel exports. Although not related to the UK, Mr Goyal warned that India would also be taxed if Europe continues to use the carbon pricing mechanism, suggesting potential uncertainty.
publishing – May 11, 2025 at 02:35 AM IST
