India-UK FTA can double merchandise trade to $45-52 billion, create up to 10 lakh jobs in 5 years: Report

The India-UK Free Trade Agreement (FTA) has the potential to nearly double bilateral merchandise trade to $45-52 billion over the next five years from the current $25 billion, while creating 7-10 lakh jobs across labour-intensive sectors, provided India continues to improve its competitiveness and business environment, according to ASSOCHAM report assessing the pact's economic impact.

The report described the Comprehensive Economic and Trade Agreement (CETA), which came into force on July 15, 2026, as one of the most significant bilateral trade agreements signed by India in recent decades. It said the agreement extends beyond tariff reductions to provide a broader framework for cooperation in trade, investment, services, technology, digital trade and supply chain resilience.

According to the report, overall bilateral trade between India and the UK could reach $115 billion over the next five years, subject to competitiveness, investment flows and global economic conditions.

Labour-intensive sectors to benefit

The agreement is expected to create fresh export opportunities across several labour-intensive industries, including textiles and apparel, leather and footwear, engineering goods, pharmaceuticals, chemicals, marine products, processed food, gems and jewellery, and auto components. Expansion in these sectors is expected to boost production, exports and employment, with the report estimating the creation of 700,000 to one million jobs over the next five years.

Engineering goods are likely to emerge as one of the biggest beneficiaries due to improved market access in the UK, while export-oriented micro, small and medium enterprises (MSMEs) are expected to gain from simplified customs procedures, digital trade provisions and stronger integration into global value chains. However, the report cautioned that tariff concessions alone would not guarantee export success.

"Indian exporters will need to improve product quality, comply with technical standards, certification requirements, Rules of Origin, sustainability norms and carbon-related regulations to fully benefit from the agreement," it said.

Duty-free access for 99% of Indian exports

Under the agreement, 99% of India's exports to the UK by value will receive duty-free access, covering nearly the entire trade basket. This includes products from labour-intensive sectors such as textiles, leather, marine products, gems and jewellery, and toys, as well as high-growth industries including engineering goods, chemicals and auto components.

India, on the other hand, has opened 89.5% of its tariff lines, covering around 91% of UK exports, while continuing to protect sensitive sectors and strategically important industries where domestic manufacturing capabilities are still being developed. The report said lower import duties would also make a range of UK products more affordable for Indian consumers by improving product availability and competitiveness.

Stronger services and investment ties

The agreement is also expected to strengthen India's services exports, particularly in IT and IT-enabled services (IT/ITES), fintech, engineering, consulting, accounting, architecture, education and research & development.

A key feature of the pact is the Double Contribution Convention, which exempts Indian professionals and their employers from paying UK social security contributions for up to five years during temporary assignments. The report said this provision could boost India's services exports across 137 sub-sectors, including professional, education and business services.

On the investment front, the agreement is expected to encourage greater UK investments in renewable energy, manufacturing, financial services, fintech, infrastructure, healthcare, education, artificial intelligence and clean technologies, helping strengthen India's manufacturing ecosystem and creating opportunities for domestic suppliers.

MSMEs expected to gain

The report highlighted that export-oriented MSMEs in sectors such as textiles, leather, jewellery, engineering, pharmaceuticals and food processing stand to benefit substantially from preferential access to the UK market.

The agreement also includes a dedicated MSME chapter, aimed at supporting smaller businesses through simplified customs procedures, paperless trade systems and digital trade facilitation.

At the same time, the report acknowledged that some MSMEs could face greater competition from UK imports, particularly in high-value segments such as precision engineering, advanced medical devices and industrial machinery.

However, it argued that India's advantages—including lower labour costs, an extensive supplier ecosystem, government support through Make in India and Production Linked Incentive (PLI) schemes, and a large domestic market—would help offset these challenges.

Complementary economies

The report said the economic logic of the agreement lies in the complementary nature of the two economies rather than direct competition. India brings a large domestic market, a young workforce and expanding manufacturing capabilities, while the UK offers advanced technology, deep financial markets and expertise in high-value services.

The agreement connects the world's fastest-growing major economy with one of the world's leading financial and innovation hubs, creating opportunities for deeper collaboration in trade, investment, innovation and resilient supply chains.

Bilateral trade on a strong footing

India-UK merchandise trade stood at $25 billion in 2025-26, more than doubling over the past decade. The UK is currently India's fifth-largest export destination, accounting for around 3% of total exports, while ranking 15th among India's import sources, with a share of about 1.5%. India's major exports to the UK include mechanical and electrical goods, apparel, smartphones, turbojets and aviation turbine fuel, while key imports comprise silver, turbojets, aluminium scrap, iron and steel scrap, and brass.

The report concluded that while the India-UK FTA has the potential to significantly boost trade, investment and employment, its ultimate success will depend on sustained improvements in infrastructure, logistics, ease of doing business, productivity and the ability of Indian exporters to meet evolving global standards.