India Insights: India–UK Trade Deal Raises Big Questions About Global Free Trade

On July 24, 2025, UK Prime Minister Keir Starmer and Indian Prime Minister Narendra Modi formally signed the landmark UK–India Free Trade Agreement (FTA) at Chequers, the official residence of the British Prime Minister. The signing followed more than three years of negotiations, which were finalized on May 6, 2025. Both leaders said that the agreement was the most significant trade deal since Brexit, signalling renewed economic ambition and deepening bilateral ties.

The pact aims to slash UK tariffs from an average of 15% to around 3% on goods entering India, while offering duty‑free access on approximately 99% of Indian export lines into the UK, covering nearly 100% of trade value. Governments project that bilateral trade will rise by approximately £25.5 billion annually by 2040, contributing around £4.8 billion per year to UK GDP.

Key Terms And Provisions

According to Indian trade officials, around 99% of Indian export lines to the UK, covering sectors like textiles, leather goods, footwear, marine products, sports gear, gems & jewellery, engineering goods, and auto components, will enter the UK with zero import duties.

UK Tariffs Slashed on Key Products:

• Scotch whisky and Gin duties will be cut from 150% to 75% immediately, then progressively reduced to about 40% over ten years.

• Imported cars from the UK face a phased reduction from over 100% down to 10%, within a quota system beginning at roughly 10,000 vehicles per year and rising gradually to 19,000 by year five.

However, the FTA signed between the two nations goes beyond these major tariff cuts. It includes comprehensive provisions on services, digital trade, investment, government procurement, and labor and environmental standards. UK firms will gain access to some procurement contracts in India, while Indian professionals like chefs, musicians, and contract service providers gain new business mobility provisions.

India’s Perspective

For India, the UK FTA marks a significant opportunity to boost exports and attract foreign investment. Exporters from industrial regions like Tamil Nadu and Gujarat are expected to see major gains, with projections indicating a possible doubling of export volumes in the next few years. Cities such as Chennai, known for its leather and knitwear industries, are especially well-positioned to take advantage of the deal.

Micro, small and medium enterprises (MSMEs), which form the backbone of India’s manufacturing ecosystem, stand to gain considerably. With duty-free access to the UK market and support from simplified trade processes, Indian MSMEs are expected to become more competitive against regional rivals like Bangladesh and Vietnam. A new trade corridor valued at around $23 billion is projected to emerge, driven by British investments and Indian exports. These developments align closely with India’s 'Make in India' agenda, which aims to strengthen domestic production and job creation.

However, not everything is going to be all sunshine and roses for India. The deal also brings concerns, especially around the potential impact on sensitive sectors. Areas like dairy, certain agricultural commodities, and the domestic automobile industry have been deliberately shielded in the agreement. Tariff reductions in these sectors will be gradual, and some remain under strict quotas. This cautious approach is seen as a way to protect local players like Tata Motors and Mahindra & Mahindra from being overwhelmed by cheaper imports.

Overall, India’s approach to this free trade deal reflects a strategic balance: it opens up access for competitive, export-driven sectors while protecting politically sensitive industries. The real test will lie in implementation, whether India can scale up its MSMEs to meet demand and navigate the high regulatory standards of the UK market.

Strategic & Global Context

The India–UK trade deal reflects a broader strategy of incremental liberalization by India. While the agreement opens up many sectors, it deliberately excludes sensitive areas. This cautious approach is consistent with India’s recent trade policy, which balances its ambition to expand global commerce with the need to protect domestic industries and manage political sensitivities. The pact also signals India’s intent to anchor future free trade agreements with major partners like the European Union, the United States, and Australia, while maintaining control over critical sectors.

For the UK, the deal represents an important step in asserting its “Global Britain” strategy after Brexit. By deepening economic ties with India, the UK aims to strengthen its commercial and geopolitical presence in the Indo-Pacific region, a fast-growing and strategically vital area. The agreement supports the UK’s desire to diversify trade relationships and demonstrates its commitment to engaging with emerging economies outside of Europe.

Although the UK currently accounts for about 3.5% of India’s exports, a relatively modest share, the deal sets a precedent for future, more comprehensive trade agreements.

Who Really Benefits?

While the India-UK FTA offers quite a lot of advantages for urban exporters and MSMEs, rural producers and revenue-dependent state governments face mixed outcomes.

Urban exporters, particularly in sectors like textiles, leather, and engineering goods, stand to benefit substantially from the FTA. For instance, Tamil Nadu's textile hubs, including Tirupur, anticipate a doubling of exports to the UK due to reduced tariffs and improved market access. The state's leather and footwear industries, which account
for 40% of India's output, are expected to benefit from the elimination or reduction of duties, enhancing their global competitiveness. Micro, Small, and Medium Enterprises (MSMEs) across various sectors are also poised to gain from the agreement's provisions.

However, rural producers and state governments that rely heavily on customs revenue may encounter challenges. The FTA's tariff reductions are expected to lead to an estimated loss of ₹4,060 crore (approximately $510 million) in customs revenue in the first year, with the shortfall widening over the next decade. This poses fiscal concerns for states dependent on import duties as a significant source of income.

Despite the headline-grabbing tariff cuts and ambitious trade growth targets, the deal is carefully hedged with exclusions, phased timelines, and protections for sensitive sectors. This cautious approach reflects both countries’ desire to reap economic benefits while managing domestic political and economic realities.

Ultimately, whether this trade deal reshapes the global trading landscape or simply provides mutual optics that mask underlying limitations will depend on how effectively both sides implement and build on this foundation in the years ahead.