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Jul 10, 2025
Implications of the India-UK Free-Trade Agreement | S&P Global
BLOG — July 10, 2025 Implications of the India-UK Free-Trade Agreement By Raj Badiani, Jan Gerhard, Deepa Kumar, Hanna Luchnikava-Schorsch, and Shuchita Shukla Summary The recent free-trade agreement between India and the UK is set to boost Indian exports, enhance worker mobility, and secure the UK with greater access to India's middle-class market, while also facilitating ongoing trade diversification efforts for India amidst evolving global trade dynamics. Learn more about our insights and data What was decided in the UK-India free trade agreement? The India-UK FTA, concluded on May 6, stipulates that India will reduce tariffs on 90% of its import lines from the UK, of which 85% would be fully free of duties within a decade. Most notably, tariffs on whisky and gin imports from the UK will be halved from 150% to 75%, before falling further to 40% by the 10th year of the deal, while automotive duties will fall from 100% to 10% under a quota. The India-UK agreement aims to double the level of total trade between the two countries (in both goods and services) by 2030 from the US$56.7 billion reported in 2024. What is the scope for merchandise and manufacturing trade growth? Expanded Indian merchandise and manufacturing exports as a result of its free-trade agreement (FTA) with the UK will reinforce the existing upward trend in exports to the UK and should expand the market for key exports such as textiles and apparel facing access hurdles to the US. In 2024, India’s merchandise exports to the UK totaled about US$14 billion (approximately 3% of total Indian exports), making the UK its sixth largest export market. For the UK, India was the 14th largest export market last year, taking about 1.7% of its total exports that year (equivalent to about US$9 billion). Mapping the thousands of individual trade lines from our Global Trade Atlas database to a more manageable set of 27 industries in our Comparative Industries database allows us to identify key sectors in both countries that dominate India-UK trade relations. For India: Motor vehicles, computers and electronics, and coke and petroleum industries currently make up the largest portions of its export basket to the UK and are likely to increase UK market share following the FTA. There is also sizable scope to expand exports of apparel and leather goods to the UK, as this segment currently accounts for just under 4% of India’s total exports to the UK. For the UK: Exports to India are dominated by the non-ferrous metals industry, which accounts for nearly 40% of its total exports to India and includes precious metals like platinum, gold, and silver together with copper, nickel, aluminum, lead, zinc, and other base metals. While much smaller by value, UK motor vehicle exports are likely to expand in the Indian export market to reflect the substantial reduction in automotive tariffs, albeit tempered by import quota restrictions and gradual changes in buying patterns. Reduced tariffs for whisky and gin should benefit the UK beverages industry, representing 97% of that industry’s total exports to India, but this area represents less than 4% of UK exports to India. Other important industries include iron and steel, computer and electronics, machinery and equipment, and chemicals. What is the economic impact on India? The FTA’s direct economic benefits for India are likely to be moderate and will materialize over time, given the ratification period of up to a year and the gradual duty reduction over the next decade. The agreement is a signal to other bilateral trading partners and investors, showing the degree of India’s willingness to further open its protected market to strategic partners, particularly where these are amenable to expand trade in services. India has some of the highest global tariffs on imports, particularly on raw materials and agricultural products, and while Indian political willingness to rationalize these tariffs has increased, easing of its restrictions remains likely to be selectively applied. The UK deal may create or expand the market for key Indian exports facing access hurdles to the US — India’s largest single-country export destination — due to the announced US tariffs, even if the announced reciprocal tariff of 26% on India is lowered because of US domestic legal challenges or the ongoing US-India trade negotiations. The increased mobility of Indian workers in the UK and savings from the national insurance scheme waiver for ICT workers for up to three years is likely to boost Indian remittances from abroad, supporting the country’s current account and domestic consumption. Indian workers based overseas remitted around US$130 billion in 2024, or 3.3% of GDP, with the UK being the third key source of remittances after the US and UAE. Want deeper insight? See our International Trade and Tariffs page What is the economic impact for the UK? The UK-India trade agreement is likely to be marginally positive for UK growth. Initial UK real GDP gains are likely to expand over time given the broad planned tariff reductions on UK exports to fully tariff-free status within a decade, with demand for UK goods also likely to reflect India’s economic growth as it moves towards becoming the world’s third largest economy by 2030. Trade gains for the UK will slowly accrue from greater access to India’s fast-expanding middle-class segment, except in the beverage sector which will see an immediate halving of tariffs on 97% of its exports to India (whisky and gin). The lowering of tariffs on UK’s automotive exports to India under a quota system lacks operational clarity, while the exclusion of pharmaceutical exports from the deal limits GDP gains for the UK. The swifter than expected finalization of the FTA with India is an encouraging step towards the UK’s ongoing reorganization of global trade activity. This will remain focused on post-Brexit measures to reduce supply chain disruption and ensure continued access for UK exporters to European and international markets. What remains to be decided and what comes next? Key policy differences between India and the UK that had blocked earlier trade agreement negotiations will now be addressed outside the signed FTA. A Double Contribution Convention Agreement (social security pact), also concluded on May 6, will exempt Indian (and British) workers on temporary intra-company transfers to the other country from national insurance contribution for three years. Mobility of Indian workers into the UK will be addressed by expediting British visas for Indian professions in selected sectors. Exemption of Indian exports from the UK’s planned carbon tax and the Bilateral Investment Treaty (BIT) remain under negotiation. India’s FTA with the UK forms part of expedited Indian efforts to secure trade agreements with a wider set of trade partners considered strategic to Indian interests, with ongoing global trade policy changes encouraging India to diversify its trade ties. In 2025 and 2026, the Indian government will continue efforts to finalize trade agreements with Gulf countries, Australia, Japan, the Philippines, Vietnam, and Latin American countries. This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global. From neighborhood to nation we have you covered Regional Explorer: Economics, risk, and data analytics Learn More