India and U.K. Seal Historic Free Trade Agreement

On May 6, 2025, India and the United Kingdom concluded a landmark Free Trade Agreement (FTA) described by both governments as a “historic milestone.” This comprehensive and mutually beneficial trade pact aims to enhance economic cooperation, eliminate trade barriers, and boost investment and job creation. Coming after over two years of negotiations, the agreement covers goods, services, investment facilitation, and mobility of professionals, and is set to significantly transform the economic landscape between the two countries. The deal also includes a Double Contribution Convention to resolve long-standing concerns related to social security contributions for Indian workers in the UK.

Why in the news?

• India and the United Kingdom concluded a landmark Free Trade Agreement (FTA) on 6th of May after long talks between both countries.

Key Features and Highlights of the India–UK FTA

1. Zero Duty Access for Indian Exports

• 99% of Indian exports to the UK will enjoy zero customs duty, offering a major boost to labour-intensive and manufacturing sectors.
• This is expected to double bilateral trade, currently valued at $60 billion, by 2030.

2. Indian Tariff Reductions for UK Goods

• India has agreed to reduce or eliminate tariffs on 90% of UK tariff lines, with becoming duty-free within a decade**.
• Tariff reductions will be phased, ensuring a balance between liberalization and protection of domestic interests.

3. Key Indian Sectors Benefiting

• Textiles, footwear, marine products, leather, sports goods, toys, gems and jewellery, engineering goods, auto parts, organic chemicals – all will gain from enhanced market access.
• The textile industry is expected to see significant growth, as UK tariffs of up to 10% will be removed.

4. Benefits for UK Exporters

Major tariff cuts in India for products such as,

• Whisky and gin: reduced from 150% to 75%, then to 40% over 10 years.
• Automotive parts: reduced from 100%+ to 10% under a quota.
• Cosmetics, aerospace, lamb, medical devices, electrical machinery, salmon, soft drinks, chocolate, and biscuits.

5. Mobility and Labour Provisions – The Double Contribution Convention

• Indian professionals working in the UK and their employers will be exempt from social security contributions for 3 years, a longstanding demand of India.
• This will reduce costs for Indian IT and service companies and make Indian talent more competitive in the UK market.

Strategic and Economic Significance

6. Boost to Labour-Intensive Sectors

• The FTA is expected to create employment, especially in MSMEs involved in textiles, apparel, footwear, and auto components.
• Start-ups and innovators are also expected to benefit from easier access to UK markets and capital.

7. Services Sector Integration

• Though not detailed extensively, the FTA sets the groundwork for deeper services trade integration, including IT, legal, and financial services, where India has a comparative advantage.

8. Geopolitical and Trade Policy Implications

• This FTA is the UK’s largest deal post-Brexit and the most ambitious trade pact ever signed by India.
• It signals India’s growing importance in global supply chains and the UK’s pivot to non-EU markets.

9. Sensitive Sector Protection

• India excluded sensitive items like dairy products, apples, and cheese from tariff concessions to protect domestic farmers.
• This balance helps ensure that agricultural interests are not compromised.

Criticism and Concerns

10. Farmers and Beverage Industry Opposition

• Farmers’ outfits have criticized the FTA, fearing that it may hurt small agricultural producers and traditional industries.
• The Indian alcohol beverage industry expressed concern over future trade deals (like with the EU or US) following the precedent of tariff cuts on whisky and gin.

11. Carbon Border Adjustment Mechanism (CBAM)

• India is concerned about the UK’s carbon tax, which could hurt exports of metal and mineral products.
• India has proposed a ‘rebalancing mechanism’ to counteract the impact, though this remains under negotiation.

Path to the Agreement

• Talks officially began in January 2022, with significant progress during the G20 Summit in Rio (November 2024).
• Final negotiations were wrapped up in London in April 2025, with the agreement announced on May 6, 2025, following a call between PM Narendra Modi and PM Keir Starmer.
• The pact is expected to be followed by a Bilateral Investment Treaty (BIT) to deepen investment protection and cooperation.