The India-UK Free Trade Agreement (FTA), finalised on May 6, 2025, marks a historic step toward deepening economic ties between the two nations. Described by the Indian government as a "historic and ambitious deal," the FTA eliminates tariffs on 99% of Indian tariff lines, covering nearly 100% of trade value, and reduces tariffs on 90% of UK tariff lines. With bilateral trade valued at US$60 billion in 2024 and projected to reach US$100 billion by 2030, the agreement promises significant economic benefits. This analysis examines the wins and trade-offs for India, focusing on market access, economic growth, services, and the strategic protection of sensitive sectors, such as dairy.
Wins for India
1. Unprecedented Market Access for Exports
The FTA provides zero-duty access for 99% of Indian tariff lines, encompassing sectors such as textiles, leather, footwear, sports goods, toys, gems, jewellery, engineering goods, auto parts, engines, organic chemicals, and agricultural products like grapes, mangoes, and marine products (e.g., shrimp and tuna). This near-complete tariff elimination enhances the competitiveness of Indian goods in the UK, a high-value market. The agreement builds on earlier projections of a 20% increase in agri-exports within three years, aligning with India's goal of achieving USD 100 billion in agri-exports by 2030. Labour-intensive sectors, such as textiles and leather, are expected to experience significant export growth, thereby boosting rural economies and creating jobs.
2. Economic Growth and Job Creation
The FTA is poised to drive substantial economic growth in India, particularly in labour-intensive sectors. The elimination of tariffs on textiles, apparel, leather, and footwear is expected to create significant employment opportunities, aligning with the Indian government's focus on job creation. Additionally, the agreement supports India's ambition to double bilateral trade to US$100 billion by 2030, enhancing economic resilience through diversified export markets. The inclusion of processed foods (e.g., mango pulp, pickles) and marine products strengthens India's agribusiness sector, fostering investment in supply chains and value-added processing.
3. Strengthened Services Sector and Professional Mobility
The FTA includes ambitious commitments for Indian services, particularly in IT/ITeS, financial services, professional services (e.g., architecture, engineering), and educational services. These commitments enhance the competitiveness of Indian service providers in the UK, a key market for India's IT and professional sectors. The agreement also facilitates professional mobility for contractual service suppliers, business visitors, investors, intra-corporate transferees, and independent professionals such as yoga instructors, musicians, and chefs. The Double Contribution Convention (DCC) exempts Indian workers temporarily in the UK from social security contributions for three years, thereby reducing costs for employers and enhancing India's competitiveness in global talent markets.
4. Consumer and Supply Chain Benefits
Indian consumers are likely to benefit from reduced prices on UK goods such as whisky, cosmetics, and medical equipment due to tariff reductions (e.g., whisky tariffs dropping from 150% to 40% over a decade). Streamlined customs processes and commitments on digitally delivered services improve trade efficiency, potentially lowering costs for businesses and consumers. Access to cutting-edge UK technology and investment by Indian firms is expected to drive innovation and job creation in sectors such as engineering and IT.
Trade-offs for India
1. Limited Reciprocal Market Access
While the FTA opens up vast opportunities for Indian exports, India's protectionist stance on sensitive sectors, such as dairy, edible oils, and apples, limits the UK's access to its market. The exclusion of dairy from tariff concessions, as highlighted in prior analyses, safeguards India's domestic dairy industry, which supports millions of farmers. However, this may constrain reciprocal benefits for the UK, potentially leading to pressure for concessions in future negotiations. The UK's reduced tariffs on 90% of its tariff lines, while significant, are less comprehensive than India's 99%, which could complicate long-term trade balance discussions.
2. Increased Competition in Domestic Markets
The reduction of tariffs on UK goods, such as whisky, gin, cosmetics, and medical devices, may expose Indian producers to heightened competition, particularly in premium market segments. Small-scale Indian manufacturers in sectors such as beverages or personal care products may face challenges competing with established UK brands, which can leverage quality perceptions or marketing advantages. Additionally, the influx of UK technology and products could disrupt local industries not fully prepared for global competition.
3. Implementation Challenges and Costs
To fully capitalise on the FTA, Indian exporters must comply with stringent UK regulations, including those related to food safety, phytosanitary standards, and rules of origin. Meeting these requirements necessitates significant investment in infrastructure, certifications, and supply chain upgrades. Smaller businesses, particularly in agriculture and textiles, may struggle with these costs, potentially limiting their ability to benefit from the agreement. The lack of publicly available detailed tariff schedules and rules of origin, as noted in the EY alert, adds uncertainty, requiring stakeholders to prepare proactively for implementation.
4. Social Security and Mobility Trade-offs
While the DCC provides financial benefits by exempting Indian workers from UK social security contributions, its limited scope compared to full Social Security Agreements (e.g., with the EU or Canada) may restrict long-term benefits for Indian professionals. The agreement does not address the UK immigration health surcharge, which could offset some cost savings for Indian workers and firms. Additionally, increased professional mobility may lead to brain drain in niche sectors if highly skilled professionals seek opportunities abroad.
Strategic Implications
India's protectionist stance on dairy and other sensitive sectors reflects a strategic prioritisation of domestic stability and food security. By shielding these industries, India ensures the livelihoods of millions of farmers and maintains control over critical supply chains. However, this approach may limit opportunities for foreign investment or collaboration in these sectors, potentially slowing modernisation. The FTA's focus on services and professional mobility strengthens India's position as a global leader in IT and professional services. Still, it requires robust domestic policies to manage talent retention and skill development.
Conclusion
The India-UK FTA is a transformative agreement that delivers significant wins for India, including unprecedented market access for exports, job creation in labour-intensive sectors, and enhanced competitiveness in services. The projected doubling of bilateral trade to US$100 billion by 2030 underscores its economic potential. However, trade-offs include limited reciprocal market access, increased competition for domestic producers, and implementation challenges. India's strategic protection of sectors like dairy balances economic liberalisation with domestic priorities; however, the future negotiations may require careful navigation to maintain this equilibrium. As stakeholders await detailed tariff schedules and rules, proactive preparation will be key to leveraging the FTA's opportunities.
