Landmark UK-India free trade agreement hailed as strategic win for both nations

The FTA is expected to increase bilateral trade by £25.5 billion and UK GDP by £4.8bn “in the long run”, the UK government said in a statement announcing the deal. 

Although the agreement has yet to be published, the UK Department for Business and Trade confirmed that tariffs on 90% of British products sold in India will be reduced, with 85% of these becoming fully tariff-free within a decade. These include cosmetics, aerospace, medical devices and electrical machinery, as well as soft drinks and food products including lamb, salmon, chocolate and biscuits.

The deal will also see tariffs on UK imports of whisky and gin halved from 150% to 75%, before reducing to 40% by the tenth year of the deal. Tariffs on automotive vehicles will fall from over 100% to 10% subject to a quota. 

UK consumers are also said to benefit from lowered tariffs on certain products imported from India, such as clothes, footwear and food products, including frozen prawns.

The deal marks the culmination of three years of negotiations which began under the previous Conservative government and have gained considerable momentum in recent months under the Labour government led by prime minister Sir Keir Starmer.

Commenting on the deal, international trade law expert Dr Totis Kotsonis of Pinsent Masons said the Trump administration’s rapidly evolving tariff policy is likely to have hastened the two sides to finally ink the deal. “Whilst both the UK and India are exploring the possibility of trade negotiations with the US with a view to addressing the latter’s concerns and avoiding – or at least limiting – the imposition of ‘reciprocal’ tariffs – no doubt, as we argued previously, the new global trade environment would have incentivised both sides to clinch the deal between them sooner rather than later,” he said.

The FTA comes at a time of ongoing global trade uncertainty created by US tariff policies.  President Trump has already announced the imposition – now suspended for 90 days – of a 26% “reciprocal” tariff on goods imported from India and a 10% tariff on British imports. 

According to Kotsonis, the added urgency created by the current global trade environment means that both the UK and India had to modify their original negotiating positions rather than prolong negotiations further. “For example, we know that India was keen to negotiate some form of exemption from the application of the UK’s carbon border tax, scheduled to come into force in January 2027,” he said. “In the end, the agreement does not make any such provisions, which would in any event have ben problematic from a WTO compliance perspective. Equally, we know that the UK has been seeking greater access for its services sectors into the India market. Although we await further details on this, it would appear that any gains in this regard are relatively modest.

Harjeet Lall, who leads Pinsent Masons' work in India, added: “Ultimately, even if the agreement is not as ambitious as it could had been had parties continued negotiating over a longer period, its importance should not be underestimated in the current climate of global trade uncertainty,” she said.

Kotsonis concurs, noting that: “The deal represents the most significant bilateral trade agreement signed by the UK since the country left the EU.”

For India, the agreement also represents another milestone in opening up the Indian market to countries with more established liberalised economies, such as Australia, Japan, South Korea and Singapore and, more recently, an agreement with the European Free Trade Association (EFTA). The country is also in the process of negotiating a trade agreement with the EU. Both sides have expressed their hope that negotiations will conclude in the coming months.

According to Kotsonis, “once again, US tariff policy is likely to feature large in the minds of both parties as they seek to overcome issues that had previously led to an impasse in their negotiations”. He added that, “ultimately, there is a wider geostrategic significance attached to India’s trade deal with the UK and in due course, with the EU, in that they contribute to the further opening up of India’s economy and the strengthening of links with the more established liberalised economies of the West for the benefit of all involved.” 

The FTA will also make it easier for Indian companies to move professional employees to the UK on a short-term basis without them having to pay National Insurance contributions over a three-year period. However, the UK government has stressed that this will not alter immigration policy or result in any changes to the UK visa system.

While the agreement will grant Indian firms enhanced digital services access that will benefit the architecture, engineering and IT sectors, the deal is also expected to give UK businesses unprecedented access to India’s vast procurement market. UK firms will now be eligible to bid on approximately 40,000 public tenders annually, valued at over £38bn. This will be particularly relevant to the life sciences, transport and healthcare and clean energy sectors.

It is unclear to what extent the deal could liberalise the provision of services between the two countries more broadly. At this stage, it appears that liberalisation of legal services will not feature in the deal. The government’s announcement merely notes that the FTA will provide for “enhanced” copyright protections for the creative sector and that the UK services sectors will benefit from “market certainty” when trading with India.

It's also unclear at this stage to what extent the agreement will include measures that might lead to a substantial reduction of non-tariff barriers.