Description

On May 6, 2025, India and the United Kingdom reached a significant milestone in their bilateral relations by finalizing a Free Trade Agreement (FTA). Described as a "historic achievement" by both governments, this comprehensive trade pact aims to enhance economic cooperation, eliminate trade barriers, promote investment, and create new employment opportunities. After more than two years of complex negotiations, the agreement covers a wide array of sectors, including goods, services, investment facilitation, and professional mobility, reflecting a shared commitment to deepening economic ties. Notably, the deal includes a Double Contribution Convention, addressing long-standing concerns over social security contributions for Indian workers in the UK, thus making it a landmark in labour mobility.

Key Features Of India-UK Free Trade Agreement

Zero Duty Access for Indian Exports

• The FTA allows 99% of Indian exports to the UK to benefit from zero customs duties, significantly enhancing the competitiveness of sectors like textiles, leather, marine products, and engineering goods.

• This duty-free access is expected to double bilateral trade, currently valued at around $60 billion, by 2030.

Tariff Reductions for UK Goods

• India has agreed to reduce or eliminate tariffs on 90% of UK tariff lines within the next ten years, creating significant opportunities for UK exporters.

• The tariff reductions will be phased, ensuring a balance between market liberalization and the protection of domestic industries.

Key Beneficiaries in India

• Key sectors expected to benefit include textiles, footwear, marine products, leather, sports goods, toys, gems and jewellery, engineering goods, auto parts, and organic chemicals.

• The Indian textile industry, in particular, stands to gain significantly, with UK tariffs of up to 10% being gradually removed.

Major Gains for UK Exporters

• The UK has secured major tariff cuts for high-value products, including:

• Whisky and gin – reduced from 150% to 75%, and eventually to 40% over a decade.

• Automotive parts – reduced from over 100% to 10% under a specified quota.

• Other products include cosmetics, aerospace components, medical devices, electrical machinery, salmon, soft drinks, chocolate, and biscuits.

Double Contribution Convention For Indian Professionals

• Under the FTA, Indian professionals working in the UK will be exempted from social security contributions for up to three years.

• This is a major win for Indian IT and service firms, reducing their operational costs and enhancing the competitiveness of Indian talent in the UK market.

Strategic And Economic Implications

Boost to Employment in Labour-Intensive Sectors

• The FTA is expected to generate significant employment opportunities in sectors like textiles, footwear, auto components, and MSMEs.

• Indian start-ups and innovators are also likely to benefit from easier access to UK markets and venture capital.

Deeper Integration of Services

• Although the agreement primarily focuses on goods, it lays the groundwork for expanded trade in services, particularly in sectors where India has a comparative advantage, such as IT, legal, and financial services.

Geopolitical and Trade Strategy Shift

• For the UK, this FTA represents its largest trade agreement post-Brexit, reflecting a strategic pivot away from the European Union towards high-growth markets like India.

• For India, this deal strengthens its position in global supply chains, reinforcing its status as a major player in international trade.

Protecting Sensitive Sectors

• India has excluded sensitive items like dairy products, apples, and cheese from tariff concessions, protecting its domestic agricultural sector.

• This careful balancing helps ensure that the interests of small farmers and local producers are not compromised.

Potential Challenges And Criticisms

Concerns from Indian Farmers and the Beverage Industry

• Some farmers' groups have expressed concerns that the FTA could undermine local agricultural producers, particularly in the context of future trade deals with major markets like the EU or the US.

• The Indian alcoholic beverage sector has also raised issues over the long-term impact of reduced whisky and gin tariffs.

Environmental and Trade Barriers

• India has raised concerns about the UK's Carbon Border Adjustment Mechanism (CBAM), which could negatively impact Indian exports of metals and minerals.

• Discussions on a potential 'rebalancing mechanism' to address this issue are ongoing.

Path To Agreement

Long Negotiation Timeline

• The FTA negotiations officially began in January 2022 and progressed significantly during the G20 Summit in Rio in November 2024.

• The final rounds of talks were completed in April 2025 in London, culminating in the official signing on May 6, 2025, following a call between PM Narendra Modi and PM Keir Starmer.

• A Bilateral Investment Treaty (BIT) is expected to follow, providing additional investment protection and cooperation.

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