Context:
- India and the United Kingdom signed a Free Trade Agreement (FTA) on May 6, 2025, marking the culmination of negotiations that began in January 2022.
- The FTA has proceeded relatively quickly by the standards of negotiation timelines. For example, the one with the EU has been dragging on for nearly twenty years, but it appears to have gained momentum recently.
Strategic Timing and Geopolitical Context of the India-UK FTA:
- Post-Brexit UK strategy:
- Post-Brexit (2020), the UK has actively sought new trade partners, signing deals with Japan, Singapore, and Vietnam, and joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) - a mega trade bloc of 12 countries.
- The FTA with India is the UK’s most significant trade deal post-EU exit, given India’s fast-growing economy and rising middle class.
- India’s trade strategy:
- In line with the goal of becoming a “Viksit Bharat” by 2047, India is increasingly integrating with global trade systems.
- The FTA is India’s first major FTA outside Asia, signalling a shift towards deeper global engagement and is a manifestation of comparative advantage (Ricardian theory).
Key Provisions of the India-UK FTA and Economic Gains:
- For India:
- Improved market access: Indian exports to the UK to benefit from reduced or zero tariffs - especially in: mineral fuels, pharmaceuticals, apparel, chemicals, machinery, iron and steel
- Ease of mobility: Eases entry for Indian professionals and students, addressing the UK’s ageing workforce.
- For the UK - Access to India’s market:
- High-value exports like automobiles, Scotch whisky, legal and financial services.
- India offers a young and digitally savvy consumer base with opportunities for British technology, education, and professional services.
- The attention towards diversification away from China, coupled with India’s strong economic trajectory, presents the UK with a rare opportunity.
Safeguards and Strategic Provisions:
- Phased tariff reductions: On sensitive goods (e.g. whisky, automobiles, agri-products) to prevent market shocks.
- Quotas: Introduced to prevent flooding of markets.
- Reciprocal benefits: UK to eliminate tariffs on Indian textiles, boosting Make in India and manufacturing.
Economic Impact and Investment Landscape:
- Bilateral trade: £42 billion by mid-2024; India maintains a trade surplus of £8 billion.
- Investment flows:
- UK: 6th-largest investor in India, over £38 billion in the past 3 years, in sectors like financial services and manufacturing.
- India: 2nd-largest source of FDI in the UK in 2023.
- Goal: Double bilateral trade by 2030.
Progressive Elements and Challenges:
- Trade rules and modernization:
- Need for harmonisation of standards, regulations, and norms.
- Focus on e-commerce, digital trade, and climate-related trade rules.
- India has opted for non-binding labour and environmental provisions (“best endeavour” clauses).
- Education and services:
- Promotion of UKIERI (UK-India Education and Research Initiative).
- Emphasis on Mutual Recognition Agreements (MRAs) for:
- Academic qualifications
- Professional licenses
Significance of the India-UK FTA in India's Trade Diplomacy:
- Paradigm shift: From protectionism to proactive trade engagement.
- Foundation for future FTAs: Encouraging signals for upcoming deals with the EU and the US.
- Instrument of domestic reform: FTAs can catalyse reforms in labour laws, logistics, scale inefficiencies, and bureaucratic hurdles.
- Bilateralism vs multilateralism: With multilateralism in a permanent coma, well-negotiated FTAs for India can play a role similar to that played by the WTO in the upscaling of the Chinese economy.
Conclusion:
- The India-UK FTA is not just a trade pact, but a strategic and economic realignment.
- It underscores India's readiness to become a global economic player and leverages FTAs as tools for growth, reform, and integration.
- The FTA’s success will depend on effective implementation, ongoing dialogue, and domestic readiness to meet global standards.
