How the India-UK Free Trade Agreement Boosts Bilateral Trade by Approximately 15% and the Sectors Contributing the Most
India-UK Free Trade Agreement: A Catalyst for Economic Growth
In May 2025, India and the United Kingdom formalized a comprehensive Free Trade Agreement (FTA) that promises to enhance bilateral trade by almost 15% annually. D. Naveen Kumar, Associate Director at CareEdge Ratings, emphasized that “This pioneering FTA also encourages investment, joint ventures, and collaborations in the services sector, further strengthening economic connections between the two nations.”
A Landmark Accord
After three years of intense negotiations, the FTA was successfully signed, making significant strides by eliminating tariffs on 99% of Indian exports to the UK and 90% of UK goods entering India. This agreement is anticipated to generate wide-ranging benefits across multiple sectors, including textiles, engineering, gems and jewellery, as well as imports from the UK such as Scotch whisky, luxury vehicles, and medical devices. According to Kumar, “Indian exporters will experience enhanced competitiveness, while consumers can expect increased choices at more affordable prices.”
Trade Dynamics: An Underutilized Partnership
Currently, trade between India and the UK represents about 2% of India’s total trade, indicating an underexploited partnership given the potential scale of both economies. The trade relationship has shown consistent growth, enjoying a CAGR of 10-12%. Although there was a downturn in 2020 and 2021, attributed mainly to the global recession and supply chain disruptions arising from the COVID-19 pandemic and Brexit, the FTA’s implementation is expected to drive trade growth. ICRA projects that by 2030, India’s exports to the UK could reach around GBP 45 billion, while imports could hit GBP 30 billion, especially considering that the FTA will take effect in a year.
Strengthening India’s Export Ecosystem
The FTA is expected to provide Indian exporters with enhanced market access, reliable supply chains, increased competitiveness, and new growth opportunities. By lowering tariffs and easing trade barriers, the FTA is designed to make Indian products more accessible in the UK market at competitive prices, thereby boosting demand for Indian goods. This agreement is particularly welcome news for exporters who have been grappling with sluggish sales and the uncertainty of potential US tariffs. Under the provisions of the FTA, 99% of Indian tariff lines will enjoy duty-free access to the UK, a significant improvement considering that many products now face import duties ranging from 4% to 18% in the UK.
Impact on Imports from the UK
When it comes to imports, key sectors like automobiles, whisky, industrial machinery, and pharmaceuticals are set to benefit from substantial tariff reductions and streamlined regulations. For example, the tariff on Scotch whisky—previously as high as 150%—has been halved and will gradually decrease to 40%, making premium UK spirits more affordable to Indian consumers. Similarly, luxury car manufacturers from the UK will see duty reductions from 100% to just 10%, promoting competitive pricing in the Indian high-end automobile market. Furthermore, the deal supports UK exports of medical devices and green technologies by reducing import duties and simplifying regulations, potentially boosting demand in Indian industries.
Consumer Benefits and Economic Growth
According to CareEdge Ratings, the influx of UK goods will provide numerous benefits for Indian consumers, granting them access to high-quality products like premium alcohol, advanced healthcare devices, and cutting-edge technology. Additionally, the arrival of modern British machinery and industrial tools could reinforce India’s ‘Make in India’ initiative by enhancing local production capabilities. Increased trading opportunities in services, particularly in education and professional sectors, are also expected to boost India’s human capital through deeper collaboration with UK institutions. While domestic producers may encounter intensified competition in some areas, the overall impact of the FTA is anticipated to improve product quality, expand consumer choices, and further integrate India into global value chains.
Sector-Specific Impacts of the FTA
Textiles
At present, India captures a mere 6% of the UK’s Ready-Made Garment (RMG) imports, while competitors like Bangladesh, Turkey, Cambodia, Vietnam, and Italy enjoy duty-free access, creating a 12% tariff advantage. With the implementation of the FTA, India is poised to acquire a similar 12% advantage over China, which currently dominates the UK’s RMG import market. This FTA is expected to level the playing field, enabling India to double its market share from 6% in CY24 to 12%, potentially translating into an additional $1.1 to $1.2 billion in annual exports in the near to medium term.
Electricals and Engineering Exports
Under the FTA, tariffs on various electrical and engineering products—which presently range from 8% to 14%—will be eliminated. This removal is projected to give Indian manufacturers a significant competitive edge over other global suppliers. Major exports to the UK in this sector include steel and aluminum products, construction and electrical machinery, and automotive components. Moreover, this agreement is expected to drive foreign investment and promote joint ventures, with CareEdge Ratings forecasting a 15% annual increase in exports up to CY30.
Gems and Jewellery
The India-UK FTA is set to unlock considerable opportunities for Indian gems and jewellery businesses by connecting them to the UK’s affluent consumer base and developed luxury market. This agreement is likely to stimulate demand for handcrafted jewellery, benefiting large exporters, small and medium enterprises, skilled artisans, and independent designers. The reduction of current tariffs—as much as 4% in some cases—will provide Indian exporters with a competitive advantage over nations like China and Thailand. CareEdge Ratings anticipates that exports in this sector will increase by over 15% annually until CY30, thanks to the FTA.
