India-UK Free Trade Agreement: Impact On Economy And Investments
According to the IMF World Economic Outlook, India is expected to surpass Japan and become the fourth-largest economy in 2025, with a nominal GDP of USD 4,187.017 billion1. The import-export industry in India is a key driver of growth. For instance, in FY 2024-25, India’s exports reached USD 820.93 billion2.
India has successful trade relations with multiple countries, including the United Kingdom. India and the UK have historically shared a complex trade relationship since the 17th century3. Recently, this relation has reached a new height through the free trade agreement.
A Brief Look At The Free Trade Agreement
Before getting into the India-UK deal, let’s understand what FTA is. A contract between nations that reduces or eliminates trade restrictions in the form of tariffs, quotas, etc., to promote the flow of commodities between them is known as a free trade agreement (FTA).
In May 2025, the landmark India-UK FTA came into force4. This section delves deep into the background and key aspects of the deal.
Background And Objectives Of The Agreement
Initially, an average tariff of 4.2% was levied on goods and services imported from India to Britain5. However, India had heavier duties on its imports from the UK. While the average tariff was somewhere around 14.6%, certain items faced much stronger duties.
For instance, cars imported from the UK faced a tariff of 100%.
However, on 6 May 2025, Prime Minister Narendra Modi announced the hallmark free trade agreement between India and the UK. The agreement aims to achieve greater trade between the countries, resulting in a boost to its economies.
The UK commodities are anticipated to save up to £400 million a year when the deal is enforced6. This benefit will expand up to £900 million a year after 10 years. Indian goods have also received further tariff cuts. The Indian economy is also expected to achieve optimum benefits from the deal.
Key Provisions Of The Free Trade Agreement
The primary provisions of the free trade agreement between India and the UK are discussed below.
1. Tariff Reduction and Market Access
About 90% of UK product lines will see tariff reductions from India, with 85% of those lines becoming completely tariff-free in ten years7. Whisky, gin, automobiles, medical equipment, etc. among the major UK exports that are gaining. For instance, automobile tariffs will decrease from over 100% to 10% under a quota system.
99% of Indian goods would no longer be subject to tariffs in the UK, increasing access to Indian textiles, leather, sporting goods, toys, maritime items, gems and jewellery, engineering goods, and auto components8.
2. Focus on sensitive sectors
Both nations have refrained from liberalising sensitive industries. Dairy products, apples, cheese, pig, poultry, eggs, and several industrial goods (diamonds, silver, cellphones, plastics, etc.) are all exempt from tariff reductions in India. The objective is to protect these businesses from monopolistic practices.
3. Professionals
Professionals in disciplines like engineering, architecture, accounting, and consulting can attend conferences, move within companies, and provide contracted services without undue obstacles owing to the agreement. It also ensures transparent visa procedures.
Moreover, the FTA lowers the financial burden on both employers and employees by introducing a Double Contribution Convention that exempts Indian professionals temporarily employed in the UK from paying social security obligations for three years, and vice versa for British professionals in India9.
4. Make in India
Businesses in the UK will have access to the public procurement market in India for construction, products, and services. Under the "Make in India" campaign, British businesses may also be given preference when it comes to government procurement.
5. Quality of work
The FTA upholds promises to high standards in certain areas and includes chapters on women, labor rights, consumer protections, anti-corruption, and development. This is a first for Indian trade agreements.
Why Are India-UK Trade Relations Important?
On the foundation of the free trade agreement, India and the UK relations are expected to gain significant momentum. However, the trade relations between the countries had often been significant. The importance of the relation is discussed below.
1. Market access: India has the biggest global economy. The UK gets access to a significant market through its trade relations with the UK. Moreover, Indian goods are not heavily taxed in the UK. This increases their competitiveness.
2. Economic growth: The strong trade relations feed into the commercial prowess of an economy. It not only widens the product market but also creates more job possibilities in the country.
3. Strategic partnership: Both countries have their unique expertise in particular categories. The nations work together to secure the progress of both new and established products. For instance, India gets strong tech expertise from the UK for its healthcare sector.
4. Consumer: The choices available to consumers increase, resulting in a higher standard of living and democratisation of consumer choice.
The free trade agreement aims to enhance the mutual benefits both countries gain from their trade relationship.
Economic Impact On India
The Organisation for Economic Co-operation and Development ranks India as the eighth most restricted services market10. Therefore, a free-trade agreement is a new territory for the Indian economy.
Let us understand the economic impact of this contract on India.
Changes In Trade Volume And Patterns
The India-UK Free Trade Agreement (FTA), which was concluded in May 2025, is expected to increase bilateral commerce by USD 34 billion annually starting in 204011.
| Before FTA | After FTA |
In 2024, overall commerce between India and the UK was £42.6 billion (approximately $60 billion)12. The UK exported commodities worth £17.1 billion and imported from India at £25.5 billion. | The bilateral trade is anticipated to double and reach USD 120 billion by 203013. |
Sectoral Effects: Winners And Losers
The free trade agreement is projected to have a substantial influence on specific industries.
Take a look at the sectoral impact of the free trade agreement on India and the UK.
- UK exports will gain a competitive advantage in sectors like alcoholic beverages, automobiles, cosmetics, etc. These sectors had very high tariffs initially.
- Indian exports to the UK are expected to gain a significant push in sectors such as textiles, gems and jewellery, engineering goods, and processed foods.
- In the case of exports from the UK, whisky, gin, medical gadgets, automotive, electrical machinery, and culinary goods are all likely to experience significant development.
- In the case of Indian exports, textiles, clothes, seafood, leather products, gems and jewellery, engineering goods, and auto components are all expected to experience significant growth.
Long-term Economic Growth Projections
By 2040, the FTA is estimated to add £4.8 billion ($6.4 billion) to the UK's GDP and raise UK wages by £2.2 billion per year. The pact is expected to create employment, attract investment, and boost supply networks in both nations.
| Parameter | Pre FTA | Post FTA |
| Total trade volume | £42.6 billion | +£25.5 billion annually |
| UK exports to India | £17.1 billion | Significant increase in whisky, cars, med-tech |
| UK imports from India | £25.5 billion | Surge in textiles, gems, auto parts, seafood |
| Indian export tariff | 4.2% avg. in UK | 99% tariff-free |
| UK export tariff | 14.6% avg. in India | 90% lines reduced |
| Bilateral trade target | $60 billion | $120 billion by 2030 |
FTA: India-UK Investment Opportunities And Challenges
A closer look at particular investment opportunities and challenges can aid investor understanding. Therefore, this section delves into the investment opportunities ushered in by the FTA.
Increased Foreign Direct Investment From The UK
Although there is no immediate increase in FDI, the FTA is anticipated to lay a solid bedrock for India-UK trade. The relaxation of duties is anticipated to encourage foreign investment in both countries. This is crucial especially for India in its pivotal juncture of growth.
Indian Outbound Investments To The UK
As stated earlier, the UK has significantly reduced tariffs on Indian exports. This move is expected to positively impact outbound investments from India. Key export items like textiles are likely to see substantial gains.
Investor Challenges In The New Environment
Indians trade various products and services to the UK. Although these trade reliefs are set to bring significant relief to businessmen and investors, some challenges that might arise are listed below.
- There are significant changes to tariffs. Investors might face some hurdles in getting used to the changed regime.
- The positive impacts of the FTA might yield results after a long gestation period.
- Industries like automobiles, alcoholic beverages, etc, in India will face a heightened competition.
Implications For Indian Industries
India imports several products to the UK. However, some specific sectors are set to gain the maximum advantage from the free trade agreement.
1. Agriculture And Food Products
The UK will remove tariffs on more than 99% of Indian animal products, vegetable oil commodities, and processed foods, making these items much more competitive in the UK market.
At the same time, India has exempted sensitive agricultural products such as dairy, cheese, apples, poultry, eggs, pig, and sugar from tariff discounts, shielding home farmers from a flood of low-cost imports and preserving rural livelihoods.
2. Textiles And Apparel Sector
The FTA is anticipated to increase Indian textile and apparel exports by approximately USD 5 billion14. It is anticipated to improve the sector's worldwide competitiveness and generate significant job opportunities.
The FTA also benefits small and medium-sized businesses (SMEs), allowing them to integrate into international supply chains and develop abroad.
3. Technology And Innovation Sector
A consideration of Indian exports by country can reveal that India is one of the major exporters of tech-service providers. Easing of trade barriers is expected to increase it significantly. Over 60,000 Indian IT experts are estimated to profit each year from expedited immigration procedures and waivers from UK social security payments for short-term projects15.
Conclusion
The UK pound price in India is increasing compared to the rupee. Economic measures are necessary to bridge the difference. The free-trade agreement is a significant move for both countries. It optimally answers the question: Is the Indian economy really growing? The agreement shows the rising economic interest of nations like the United States and the UK in India.
The India-UK Free Trade Agreement offers a competitive edge to several Indian businesses by reducing trade barriers, while safeguarding sensitive sectors such as poultry. It is also expected to benefit Indian consumers by expanding product choices and diversifying available options.
However, certain domestic industries may face increased competition due to greater market access for UK-based companies. This might improve the quality of their products and prove advantageous in the long term. Log-in to Grip Invest and navigate seamlessly through the evolving global trade landscapes with curated alternative investment opportunities.
FAQs On India-UK Free Trade Agreement
1. What is a free trade agreement?
A free trade agreement (FTA) is a contract between two or more nations that decreases or removes trade barriers such as tariffs and quotas to enhance the flow of goods and services between them. The historic India-UK Free Trade Agreement took effect in May 2025.
2. What sectors are likely to benefit the most from the FTA?
UK exports will acquire a competitive edge in industries such as alcohol, autos, and cosmetics. Initially, taxes on these industries were quite high. Textiles, gems and jewellery, technical items, and processed foods are among the industries where Indian exports to the UK are likely to increase significantly.
3. What are the benefits of the India-UK FTA
The deal demonstrates the increasing economic interest of nations such as the United States and the United Kingdom in India. The free-trade agreement provides a competitive advantage to many firms while protecting sensitive areas such as poultry.
The free trade deal is also intended to provide Indian customers with more alternatives, expanding their selections. However, Indian enterprises in particular areas are projected to face increased competition.
4. What are the disadvantages of FTA?
Although these trade reliefs are set to bring significant relief to businessmen and investors, there are some challenges. There are significant changes to tariffs. Investors might face some hurdles in getting used to the changed regime.
The positive impacts of the FTA might yield results after a long gestation period. Industries like automobiles, alcoholic beverages, etc, in India will face a heightened competition.
5. What is the free trade agreement between the UK and India?
About 90% of UK product lines will see tariff reductions from India, with 85% of those lines becoming completely tariff-free in ten years. Whisky, gin, automobiles, medical equipment, and other major UK exports are set to benefit from the agreement.
Meanwhile, 99% of Indian goods will no longer face tariffs in the UK, boosting access for Indian textiles, leather, sporting goods, toys, maritime items, gems and jewellery, engineering goods, and auto components.
References:
1. Times of India, accessed from: https://tinyurl.com/4z8xa55j
2. Ministry Of Commerce & Industry, accessed from: https://tinyurl.com/tjk548hr
3. Britannica, accessed from: https://tinyurl.com/tjk548hr
4. The Times Of India, accessed from: https://tinyurl.com/2xatkr93
5. Department For Business and Trade, accessed from: https://www.gov.uk/government/publications/uk-india-trade-deal-conclusion-summary/uk-india-trade-deal-conclusion-summary
6. Department For Business and Trade, accessed from: https://www.gov.uk/government/publications/uk-india-trade-deal-conclusion-summary/uk-india-trade-deal-conclusion-summary#an-agreement-that-delivers-growth
7. Department For Business and Trade, accessed from: https://www.gov.uk/government/publications/uk-india-trade-deal-conclusion-summary/uk-india-trade-deal-conclusion-summary#an-agreement-that-delivers-growth
8. Ministry of Commerce & Industry, accessed from: https://tinyurl.com/44w6w4me
9. Ministry of Commerce & Industry, accessed from: https://tinyurl.com/44w6w4me
10. Department For Business and Trade, accessed from: https://www.gov.uk/government/publications/uk-india-trade-deal-conclusion-summary/uk-india-trade-deal-conclusion-summary#the-strategic-case-for-a-deal-with-india
11. World Economic Forum, accessed from: https://www.weforum.org/stories/2025/05/uk-india-free-trade-deal/
12. EY, accessed from: https://www.ey.com/en_in/technical/alerts-hub/2025/05/uk-india-free-trade-agreement
13. The Times Of India, accessed from; https://tinyurl.com/2xatkr93
14. The Economic Times, accessed from: https://economictimes.indiatimes.com/news/economy/foreign-trade/india-uk-fta-set-to-boost-textile-leather-and-it-exports-concerns-over-liquor-duty-cuts/articleshow/120952480.cms
15. Financial Express, accessed from: https://www.financialexpress.com/business/industry-these-8-sectors-are-set-to-benefit-from-historic-multi-billion-pound-india-uk-trade-pactnbsp-3835664/
Want to stay at the top of your finances?
Join the community of 4 lakh+ investors and learn more about Grip Invest, the latest financial knick-knacks, and shenanigans in the world of investing.
Happy Investing!
Disclaimer - Investments in debt securities/municipal debt securities/securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully. The investor is requested to take into consideration all the risk factors before the commencement of trading.
This communication is prepared by Grip Broking Private Limited (bearing SEBI Registration No. INZ000312836 and NSE ID 90319) and/or its affiliate/ group company(ies) (together referred to as “Grip”) and the contents of this disclaimer are applicable to this document and any and all written or oral communication(s) made by Grip or its directors, employees, associates, representatives and agents. This communication does not constitute advice relating to investing or otherwise dealing in securities and is not an offer or solicitation for the purchase or sale of any securities. Grip does not guarantee or assure any return on investments and accepts no liability for consequences of any actions taken based on the information provided. For more details, please visit www.gripinvest.in
Registered Address - 106, II F, New Asiatic Building, H Block, Connaught Place, New Delhi 110001
