Introduction
India and the United Kingdom (the "UK") have finalized a historic, multi-billion-pound Free Trade Agreement (the "FTA") after 14 (fourteen) negotiation rounds over 3 (three) years. The FTA encompasses 26 (twenty-six) chapters covering various aspects of trade, investment, services, and regulatory cooperation. While we note that the FTA is due to come into force post the ratification process of both India and UK, we have analyzed below a few notable aspects of the FTA that may have a positive economic impact on trade, investment, and employment, in certain key sectors of the Indian economy.
Impact Analysis: Certain Notable Aspects
1. Liberalization, Reduction in Tariff, and Bilateral Trade:
Eliminating duties on approximately 99% (ninety-nine percent) of tariff lines (specific products in the tariff schedule of a particular country), the FTA grants India comprehensive market access across virtually all tariff lines. Key Indian sectors benefiting from duty-free access to the UK markets include textiles, apparel, leather, footwear, marine products, sports goods, toys, gems and jewelry, and auto parts. This enhanced market access is expected to boost India's export competitiveness, particularly in labor-intensive sectors critical for employment generation. For instance, currently, the UK's apparel imports are valued at USD 19.6 Billion which are primarily from China and Bangladesh, constituting nearly 45% (forty-five percent) (in aggregate) of the apparel import market in the UK, whereas India currently has a much lower share of 6% (six percent). Currently, the UK imposes average tariffs of around 11-12% on apparel from major importing countries. Post the implementation of the FTA, India shall get preferential treatment with zero tariff entry which shall prove to be a game changer for India's apparel exports projections and is expected to strengthen India's position against the current market leaders. This will mean expanded export opportunities for the Indian apparels and for other products where tariffs are negotiated to be reduced.
Furthermore, Indian consumers will have access to a wider range of high-quality British products at reduced prices, including chocolates, salmon, and Scotch whiskey, as tariffs gradually decrease on these. Duty liberalization would result in higher imports from the UK and as the supply of products increases, with the increased number of players in the market and expanded consumer choice, the prices of these products will inevitably become more competitive. Keeping the luxury goods aside, this competitive pricing and higher choice would likely benefit an everyday consumer. It can be argued that greater competition would also encourage the players of the domestic market to step out of their comfort zone and develop new and better products with improved quality standards. However, despite the elimination of tariff barriers, non-tariff barriers such as technical standards, regulations, and certification requirements may persist which can impede market access, particularly for small and medium enterprises lacking resources to navigate complex regulatory frameworks.
As an interesting segment, India's automobile sector is expected to witness significant tariff changes under the FTA. Import duties on cars are planned to drop from over 100% to 10%. This reduction will be implemented in phases, starting with internal combustion engine vehicles before extending to electric and hybrid models. However, this reduction in tariffs will not be applied on all imports but will be limited subject to specified quotas. This measured approach allows both markets to adapt gradually while maintaining protections for domestic manufacturers and distributors. Similarly, Indian manufacturers of electric vehicles and hybrid vehicles will gain staged access to the UK market under quotas. This presents an opportunity to the automobile industry of both the countries to adjust to the tariffs, and pivot strategic investments. This coupled with UK reducing tariffs on Indian exports of auto parts, we may be looking at greater innovation, and technology collaboration between players in this industry in both the countries, rather than a straightforward increase in import of cars. Thus, both the countries shall benefit with better and improvised domestic markets (albeit from a reciprocal push from the other).
2. Renewable energy:
The renewable energy sector, especially green energy, has been identified as optimally positioned to benefit from strengthened India-UK cooperation under this agreement. With a net-zero target by 2070, India has been in the works to expand renewable energy through programs like PM KUSUM for solar-powered agriculture and PM Surya Ghar-Muft Bijli Yojana. The National Green Hydrogen Mission prioritizes green hydrogen as a key low-carbon transition element, while the Renewable Purchase Obligation establishes clear adoption targets through 2029 - 2030.
The FTA is projected to enhance UK investments in India's technology, renewable energy, and infrastructure sectors. It establishes protocols for exchanging advanced renewable technologies, particularly in green hydrogen, energy storage, and grid integration. This collaboration could accelerate India's progress toward its renewable energy targets while creating new opportunities for UK technology providers. By providing a predictable regulatory framework, the FTA would enhance investor confidence, potentially increasing participation from UK financial institutions in India's renewable energy financing thereby resulting in an influx of foreign investments in India in this particular sector. Additionally, the harmonization of quality standards and certification procedures shall enable market access bilaterally, while provisions for professional mobility shall enable knowledge transfer and expertise development in advanced renewable technologies. We can look forward to increased partnerships between private and public stakeholders, with more careful navigation of procurement laws, regulatory approvals, and investment norms.
3. Make in India:
Another significant aspect of the FTA is the inclusion of the eligible UK companies as bidders in the domestic tenders as deemed 'Class II Supplier'. Under the 'Make in India' initiative read with the Public Procurement (Preference to Make in India) Order, 2017, Class II local suppliers are defined as those where the local content (value added in India) is between 20% (twenty percent) and 50% (fifty percent). This places UK suppliers at a level below Class I suppliers (who have 50% or more local content) but above non-local suppliers in the preference hierarchy for government contracts. Having the UK companies bidding in government tenders will automatically result in access to a wider variety and quality goods for the Indian public and shall force the Indian manufacturers to prepare innovative strategies to thrive in a new and more competitive environment. While this classification represents a significant concession from India, as government procurement has traditionally been a protected sector used to promote domestic manufacturing and the Make in India initiative, the Indian Micro Small and Medium Enterprises (MSMEs), traditionally sheltered by preferential access to government contracts, may face significant competitive pressure as UK firms enter this previously protected market. By introducing such new competitive pressures, this arrangement may in fact drive quality improvements and pioneer transformation across industries in the long run.
Conclusion
In light of the introduction of the sweeping tariffs by the United States, this FTA could not have been negotiated at a better time. The FTA represents a strategically timed opportunity to diversify India's export markets. As the cost of trading with the United States increases for both countries, they may seek to intensify bilateral trade relations to offset losses in the American market. While we note that the UK and the United States have negotiated a limited bilateral trade deal, the scope of the same is currently extremely limited and includes sectors like aviation and agriculture, and in most cases it still results in the UK facing higher tariffs than what it did in pre-2025 trading conditions. Whereas, in some other cases where tariff reductions have been granted, these concessions are frequently subject to strict quotas that limit their economic impact.
In light of the above, we note that the present conditions may accelerate the implementation of the UK-India FTA. Additionally, given that the global companies are already adjusting their supply chains in response to US tariffs, India can leverage the FTA to position itself as an alternative manufacturing hub and market destination. According to economic forecasts, the FTA could boost bilateral trade by approximately USD 30 (thirty) billion per year by 2030. This represents a significant step forward towards India's USD 2 Trillion export target as outlined in the Foreign Trade Policy 2023, making this agreement a vital component of the country's trade expansion strategy. The potential increase in the Indian exports would in turn require expanding domestic manufacturing, through the use of technology and additional labour, and may result in increased foreign investments into the manufacturing and the allied sectors.
While we still await the completion of the legal scrubbing process and the ratification process by both the countries, the finalization of this agreement holds the promise of redefining economic ties between the two nations in a rapidly evolving global trade environment.
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