India and the UK sign a landmark trade pact slashing tariffs on key goods, but India concedes ground on future carbon taxes and visa relaxations.

Following a wave of global trade disruptions triggered by US President Donald Trump’s tariff policies, India and the United Kingdom on Thursday signed a landmark Free Trade Agreement (FTA), sealing a deal to cut tariffs on goods ranging from textiles to whisky and cars, while opening up greater market access for businesses.

The agreement, finalised during Prime Minister Narendra Modi’s visit to the UK and his meeting with British Prime Minister Keir Starmer at Chequers Estate, is expected to add USD 6.14 billion to the UK economy and increase annual wages by USD 2.81 billion in the long term, according to British government estimates.

Talks on the deal were concluded in May after three years of stop-start negotiations, with both sides accelerating efforts to finalise the deal. The agreement between the world’s fifth and sixth largest economies is expected to boost bilateral trade by £25.5 billion (USD 34 billion) by 2040, marking a major milestone in post-Brexit Britain’s trade strategy.

While the deal represents the UK’s most significant trade agreement since leaving the European Union in 2020, its economic impact will be modest compared to the loss of frictionless trade with its closest neighbour. For India, however, the agreement is its most strategic economic partnership with a developed economy and could serve as a model for future deals, including the long-pending trade agreement with the EU and engagements with other regions.

Cars, Cosmetics, Whisky Get Break

As part of the agreement, average tariffs on British exports to India, ranging from soft drinks and cosmetics to cars and medical devices, will be reduced from 15 per cent to 3 per cent. In return, the UK will lower tariffs on several key Indian exports, including leather, footwear, and garments. India will also allow a select number of British cars to enter at a 10 per cent duty down from over 100 per cent, raising concerns for local manufacturers and employment.

Notably, the deal also includes provisions for digital trade facilitation, mutual recognition of sanitary and phytosanitary (SPS) standards, and a new defence industrial roadmap as part of a broader ‘Vision 2035’ for India-UK strategic collaboration. Additionally, UK companies will gain greater access to India’s telecom, banking and insurance sectors, while Indian firms will face competition from British bidders in central government tenders. In contrast, India secured only limited visa relaxations for its professionals.

The UK currently imports USD 14.08 billion worth of goods from India. With tariff liberalisation, British consumers and businesses will find it easier and more cost-effective to purchase Indian products, potentially enhancing Indian export competitiveness. As the India–UK FTA ushers in a new era of tariff liberalisation, regulatory alignment, and strategic cooperation under Vision 2035, it is widely seen as a catalyst for growth, employment, and competitiveness across industries.

Notably, India was unable to obtain an exemption from Britain’s upcoming Carbon Border Adjustment Mechanism, which is set to impose higher taxes on carbon-intensive imports starting in 2027, under the terms of the deal. British firms will gain access to India’s public procurement market in sectors like clean energy, while the agreement also extends to services, including insurance.

New Era Of Bilateral Growth

Political leaders of both nations have hailed the agreement as a transformative milestone, calling it a catalyst for stronger trade and investment flows and a foundation for a future-ready, innovation-driven partnership between two major global economies. The Free Trade Agreement is expected to not only enhance bilateral commerce but also foster long-term economic resilience, spur job creation, and promote inclusive growth in both countries.

Modi added that new opportunities will emerge in the UK market for India’s agricultural produce and processed food industry. This agreement will especially benefit Indian youth, farmers, fishermen and the MSME sector. On the other hand, for the people of India and industry, products made in the UK, like medical devices, will be available at reasonable and affordable prices, he noted.

PM Modi, accompanied by Union Commerce Minister Piyush Goyal, landed in London yesterday for a two-day UK visit, marking the first step towards a wider engagement with European partners. On the trade deal, Goyal stated that this agreement is a big win for farmers, ensuring duty-free exports on nearly 95 per cent of agricultural products, while fisherfolk gain from Zero Duty on 99 per cent of marine exports, boosting their incomes. 

While the agreement marks a shift in bilateral economic relations, it also presents potential challenges. The reduction in import duties on select British cars may create competitive pressure on India’s domestic auto industry and employment landscape. The agreement offers greater UK access to India’s services and public procurement sectors, while India achieved only limited visa relaxations for its professionals. The deal, while ambitious, leaves certain asymmetries that may require further negotiation.

Source: Business World

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