What is the significance of the India-U.K. free trade agreement?  Premium

India and the U.K. agree on a free trade agreement, boosting bilateral trade and creating new opportunities.

The story so far: Bringing to a conclusive end negotiations that lasted for nearly three-and-half years, India and the United Kingdom agreed to move ahead with the free trade agreement (FTA). Commerce Minister Piyush Goyal said the trade agreement would set a new benchmark for “equitable and ambitious trade between two large economies”. He also underlined it as a potential catalyst to spur trade, investment, growth, innovation and for creating jobs in both economies. The Prime Ministers of the two countries are expected to meet in India soon to officially ratify the deal.

The deal is significant for both economies on multiple counts. To begin with, the announcement comes amidst a trade environment shrouded in uncertainties following U.S. President Donald Trump’s liberation day tariffs. In this backdrop, it is imperative to note that India enjoys a positive trade balance with the U.K., therefore, it is cause for enthusiasm for exporters. India was the U.K.’s 11th-largest trading partner in 2024, accounting for 2.4% of its overall trade. With the new trade deal, the British government estimates bilateral trade would increase by $34.05 billion.

The trade agreement is also of much significance to the Labour government in U.K. It is among the major trade deals ratified by 10 Downing Street since it exited the European Union. Conservative Party Prime Ministers Boris Johnson and Liz Truss had failed to facilitate its passage, notwithstanding assertions about Diwali deadlines last year.

For perspective, the two countries first made a pact to enhance their then-existing trade relationship in May 2021. Indian Prime Minister Narendra Modi and then British Prime Minister Boris Johnson had committed to doubling trade between their countries by 2030. Thirteen rounds of negotiation were held thereafter until December 2023. However, all prospects of any significant development in the realm were marred by intra-party chaos and ensuing instability for the ruling Conservatives.

It started with Boris Johnson resigning in September the same year followed by Liz Truss, who left after spearheading the government for six weeks. Thereafter, MP Rishi Sunak took over to complete the remaining tenure before he lost power to the Labour Party in July 2024. All this while the U.K. had pushed pause on the negotiations.

Things got back on track only after Mr. Modi met the Labour Prime Minister Keir Starmer on the sidelines of the G20 Summit. Thereafter, “intense” negotiations took place in February this year before the final assent on Tuesday. This was, however, with a Labour government at Downing Street and not the Conservatives who had initiated it.

While the particulars of the deal are yet to be published, a British government release informed India will slash tariffs on 90% of products, with 85% of the overall pie expected to become “fully tariff-free” within a decade. Based on data from 2022, the U.K. estimated India could cut tariffs of more than $534 million when the deal is enforced.