India and the United Kingdom have finalized a historic free trade agreement (FTA) on May 6, 2025, marking the most significant trade pact for the UK since its departure from the European Union. This comprehensive deal aims to enhance bilateral trade by £25.5 billion ($34 billion) annually by 2040. The agreement reduces tariffs on a wide range of goods and services, including whisky, automobiles, textiles, and professional services, fostering closer economic ties between the world’s fifth and sixth-largest economies.
Key Highlights of the India-UK Free Trade Agreement
Tariff Reductions and Market Access
- For the UK: India will reduce tariffs on British exports such as whisky, gin, automobiles, cosmetics, medical devices, and airplane parts. Notably, whisky tariffs will decrease from 150% to 75%, with a plan to further reduce them to 40% over the next decade.
- For India: The UK will eliminate import duties on 99% of Indian exports, including textiles, food products, and jewelry. This move is expected to significantly benefit India’s labor-intensive sectors. AP News
Services and Professional Mobility
The agreement facilitates greater access for UK service firms to the Indian market and simplifies customs procedures. It also includes provisions for the movement of professionals, allowing Indian musicians, chefs, and yoga instructors to work in the UK with eased visa regulations.
Economic Impact
The FTA is projected to boost the UK economy by £4.8 billion over the next 15 years and reduce costs for UK businesses by up to £900 million over a decade.
Political Reactions and Controversies
While the agreement has been lauded by business communities in both countries, it has sparked political debate in the UK. Critics argue that the exemption allowing Indian workers and businesses to avoid paying national insurance contributions for up to three years creates an unfair two-tier tax system. However, UK ministers assert that these provisions align with existing agreements with other countries and will benefit UK firms operating in India.
Historical Context and Negotiation Timeline
Negotiations for the FTA commenced in January 2022, with the initial goal of concluding by Diwali 2022. However, complex issues such as market access, visa provisions, and tariff reductions led to extended discussions over 15 rounds of negotiations. The agreement was finally signed in New Delhi on May 6, 2025, by UK Prime Minister Keir Starmer and Indian Prime Minister Narendra Modi.
Future Outlook
The India-UK Free Trade Agreement is set to come into effect within the next 12 months, pending ratification by both governments. This deal not only strengthens economic ties between the two nations but also serves as a strategic move amidst global trade tensions and protectionist policies. It underscores a mutual commitment to liberalized trade and economic cooperation in a rapidly evolving global landscape.
