India and the U.K. commenced the FTA talks in January 2022. More than three years and 14 rounds of negotiations later, they agreed on zero duty access to 99% of India’s goods exports to the U.K., as well as the removal or reduction of tariffs on 92% of imported goods to India. The deal is a shot in the arm for India’s labour- and tech-intensive manufacturing sector. “Indian companies that manufacture products like automotive parts, textiles, jewellery, toys, etc., are probably going to sell more in the U.K.,” says Saurabh Agarwal, Tax Partner, EY.

For traders in the U.K., the FTA will slash Indian import duty on key products such as whisky, cosmetics, and medical devices, locking in reductions on 90% of tariff lines, with 85% going tariff-free in a decade. “Premium scotch, chocolates, cookies, and medical devices will be available to Indian consumers at the right price... The government wants to create a level playing field. That’s a win for the consumers,” Agarwal explains.

The Double Contribution Convention waives off social security contributions for Indian workers who are in the U.K. temporarily and by their employers for up to three years, thus benefitting the services sector.

The two nations will now fine-tune the legal text before ratifying it. Hence, it may take up to a year before the pact is implemented.

Yet, the promises are huge. The FTA is expected to double the India-U.K. bilateral trade in five years. It is around $60 billion now. A policy paper by the U.K.’s Department for Business and Trade states that the deal “is expected to increase U.K.’s GDP by £4.8 billion and wages by £2.2 billion each and every year”. From whisky businesses of Scotland to the services sector of Northern Ireland, and the lamb traders of Wales, it forecasts a windfall gain for the U.K. nations.

The deal will open India’s $600-billion government procurement market to U.K. businesses, who are expected to get exclusive treatment under ‘Make in India’. “U.K. companies will be treated as a class-2 supplier if at least 20% of their products or services are from the U.K.–granting them the same status that only Indian firms currently enjoy,” the document adds.

UK FTA

U.K. trade deal could set the tone for India’s future pacts with the U.S. and EU