Why in News?

India and the U.K. have agreed to a Free Trade Agreement (FTA) after three-and-a-half years of negotiations. While details are yet to be disclosed, the deal has been welcomed by domestic industry, despite concerns about its potential effects on agriculture and MSMEs.

The agreement is expected to be signed in three months and may take over a year to come into effect.

What’s in Today’s Article?

• Significance of the India-U.K. Free Trade Agreement
• Expectations from the India-U.K. Free Trade Agreement
• Domestic Industry Response to the India-U.K. FTA
• Concerns Surrounding the India-U.K. FTA

Significance of the India-U.K. Free Trade Agreement

• Strong Trade Relationship
  • The U.K. is India’s 16th largest trading partner.
  • India is the U.K.’s 11th largest trading partner.
  • Current bilateral trade stands at around $60 billion, with India maintaining a trade surplus.
• Growth Potential
  • India projects the trade volume to double by 2030.
  • The British government estimates the new FTA could boost bilateral trade by an additional $34 billion.
• Global Context
  • The deal gains importance amid global trade uncertainty, especially following tariff disruptions under U.S. President Donald Trump’s administration.

Expectations from the India-U.K. Free Trade Agreement

• Tariff Reductions and Market Access
  • India to reduce tariffs on 90% of U.K. product categories; 85% of them to become tariff-free within 10 years.
  • U.K. to eliminate tariffs on 99% of Indian export categories.
  • Estimated tariff savings of $534 million based on 2022 prices.
• Key Beneficiary Sectors (India)
  • Increased export opportunities for textiles, leather, footwear, auto parts, engineering goods, gems and jewellery.
• Key Beneficiary Sectors (U.K.)
  • Tariffs on whisky and gin reduced from 150% to 75%, and to 40% over a decade.
  • Automotive tariffs cut from over 100% to 10%, with quotas for conventional and electric vehicles.
• Services and Labour Mobility
  • Indian workers and their employers exempt from social security contributions in the U.K. for three years under the Double Contribution Convention.
  • Commitments to keep visa procedures transparent and free from unnecessary hurdles.
• Resolution of Past Trade Barriers
  • Addresses sectors affected by earlier U.S. tariff policies under President Trump, such as automobiles and alcoholic beverages.

Domestic Industry Response to the India-U.K. FTA

• Positive Outlook Across Sectors
  • Indian industry has welcomed the FTA, anticipating a sharp rise in exports, especially in key sectors.
• Apparel and Textiles
  • Textiles, a major Indian export to the U.K., are expected to see exponential growth.
  • Experts highlighted India’s new duty-free access to U.K. markets, similar to Bangladesh and Vietnam.
  • Competition from U.K. imports in this sector is minimal.
• Automobile Industry
  • The FADA expects mutual benefits:
    • U.K. to access India’s premium car segment.
    • Indian manufacturers to target the U.K.’s mass-market segment.
  • Indian cars are expected to remain competitive due to lower production and labour costs.
• Gems and Jewellery
  • Analysts projected a $2.5 billion export increase within two years.
  • The sector aims to double bilateral trade to $7 billion.

Concerns Surrounding the India-U.K. FTA

• Agriculture Sector Worries
  • Farmers' groups fear price crashes in key products such as spices and tea—similar to past experiences with FTAs involving Sri Lanka and ASEAN.
    • Rubber prices have declined significantly post-ASEAN FTA (₹230/kg in 2011 to ₹170/kg in 2025).
  • Concerns include unequal competition, small land holdings, and WTO’s outdated base price for subsidy calculations that disadvantage Indian farmers.
• Impact on MSMEs
  • MSMEs fear being undermined by foreign competition in public procurement and key sectors.
  • Experts warn that foreign firms could weaken India's policy tools for building local capacity in sectors like defence, health, and renewables.
  • U.K. companies may gain better access to Indian government contracts, potentially displacing small domestic suppliers.
• Import Dependency Risks
  • Analysts fear that FTA could foster greater import dependency, especially in sensitive and strategic sectors.
• Carbon Border Adjustment Mechanism (CBAM)
  • U.K.’s CBAM may impose carbon pricing on imports, impacting India’s aluminium and steel exports.
  • Although CBAM is a European initiative, India has signalled possible retaliatory carbon taxes, adding to trade uncertainties.