Free Trade Agreement (FTA) Signed Between UK-India

Syllabus: GS2/International Relations, GS3/ Economy

Context

• India and the United Kingdom have signed a landmark Free Trade Agreement (FTA) after nearly three years of negotiations.

What is a Free Trade Agreement or FTA?

• FTAs are arrangements between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non tariff barriers on substantial trade between them.
  • They can cover both goods and services.
• FTAs also address issues such as investment, mobility of professionals, and regulatory cooperation.
• The India–UK FTA negotiations were formally launched in 2022, as part of efforts to deepen economic cooperation and boost bilateral trade. 

Key highlights of FTA

• Tariff Elimination: Nearly 99% of Indian exports to the UK will now be tariff-free.
  • Key sectors to benefit include: textiles, marine products, leather, footwear, sports goods, toys, gems and jewellery, engineering goods, auto components, and organic chemicals. 
• Services Sector Gains: UK has offered its most ambitious market access commitments for Indian service providers.
• Indian professionals in the UK will be exempt from paying UK social security contributions for up to three years, reducing employment costs and increasing competitiveness.
• Enhanced Mobility:
  • Simplified visa and mobility norms for Indian professionals and intra-corporate transferees.
  • Special quotas for Indian workers in select UK sectors.

Benefits for the UK

• Whisky and Gin: Tariffs to be halved from 150% to 75% immediately, and further reduced to 40% in 10 years.
• Automobile Exports: India to reduce import duty on cars to 10% under a quota system.
• Other sectors benefitting:
  • Cosmetics, medical devices, aerospace
  • Electrical machinery, chocolate, soft drinks, lamb.

Trade and Economic Impact

• India was Britain’s 11th largest trade partner in 2024 and accounted for 2.4% of total UK trade.
• India’s exports to the UK were worth $34 billion (£25.5 billion) in 2024, and UK exports to India amounted to $22.8 billion (£17.1 billion) in 2024.

Why was the FTA needed?

• Post-Brexit Strategy: The UK needed new trade partnerships after losing access to the EU market and India’s large and growing economy offers a viable alternative.
• China-Plus-One Policy: Western nations are reducing dependence on Chinese supply chains, seeking diversified trade ties.
• India’s Global Trade Realignment: The India-UK FTA is part of India’s broader strategy to diversify trade partners and reduce dependence on China and multilateral blocs like RCEP, which India opted out of in 2019 over concerns of trade imbalances and inadequate safeguards.
• Global Trade Uncertainties: With US tariffs and geopolitical instability, the FTA provides a more stable and predictable trade relationship.

Concerns

• Limited Additional Benefits: The Global Trade Research Initiative (GTRI) suggests that the FTA might yield only marginal gains, as many Indian goods already faced low or zero tariffs.
• Environmental Tariffs: The UK’s carbon border tax proposal on imports like metals posed a potential barrier for Indian exporters which needed further negotiation.

Concluding remarks

• The India-UK FTA is a significant stride in India’s evolving trade architecture. 
• While its immediate economic impact may be modest, strategically it enhances India’s global trade integration, supports domestic reforms, and lays the groundwork for deeper economic engagement with developed nations. 
• Successful implementation and follow-up negotiations in sensitive sectors will be key to realizing its full potential.

Source: AIR