India and UK set to ink trade deal: What is on the cards?

India and the United Kingdom (UK) are on the verge of a historic moment as Prime Minister Narendra Modi and UK Prime Minister Sir Keir Starmer prepare to sign a landmark Free Trade Agreement (FTA) this week. The agreement, which has been years in the making, will usher in significant tariff reductions and trade liberalisation, providing both nations with fresh economic opportunities. However, while India stands to benefit from expanded market access and cheaper goods, other global powers, particularly the United States and Japan, may face heightened competition in the Indian market.

What you should know about the India-UK FTA

The deal, finalised after nearly three years of negotiations, is poised to cut tariffs on more than 90 per cent of UK exports to India. These reductions will span a broad range of goods, including alcoholic beverages like Scotch whisky and gin, which will see tariffs reduced from 150 per cent to 75 per cent immediately and eventually to 40 per cent over the next decade. Likewise, British luxury cars will enjoy a major tariff cut, from over 100 per cent to 10 per cent, though the benefit will be subject to a quota system.

The agreement also eliminates or reduces tariffs on a variety of consumer and industrial products, such as salmon, chocolates, machinery, cosmetics, and medical devices. Indian consumers can expect lower prices on imported goods, while UK manufacturers can gain a stronger foothold in India's growing market.

For India, the deal provides preferential market access for nearly 99 per cent of its exports to the UK, particularly benefiting sectors like textiles, footwear, gems and jewellery, auto components, and pharmaceuticals. Indian textile hubs such as Tiruppur and Surat, as well as companies like Welspun India and Arvind Ltd., stand to gain from the elimination of UK tariffs on textiles and apparel. Indian manufacturers of footwear, like Bata India and Relaxo, will also be able to tap into the UK market duty-free. Furthermore, Indian electric vehicle makers like Tata Motors and Mahindra Electric will enjoy reduced tariffs and quotas on UK-bound electric and hybrid vehicles.

In the services sector, the deal paves the way for easier short-term entry of Indian professionals, including yoga instructors, chefs, and musicians, to the UK. Indian workers on short-term transfers will be exempt from paying UK national insurance contributions for up to three years, offering significant cost savings for companies engaged in intra-company transfers.

Impact on US Exports to India

While the FTA marks a win for India and the UK, it introduces new challenges for other global players, particularly the United States. The agreement is expected to trigger heightened competition in a number of sectors where the US has a strong presence. The US exported $39 billion worth of goods to India in 2024, and approximately 3.2 per cent of that total, around $1.24 billion, could be exposed to increased competition from UK products.

US exports to India most at risk include copper and iron waste, machinery, vehicle parts, contact lenses, and therapeutic equipment. The immediate tariff reductions on UK goods will create a price advantage for British producers, potentially eroding market share for US exporters in these segments. In particular, industries such as copper and iron waste, which account for a substantial portion of US exports to India, could see heightened competition from UK imports, further complicating the trade landscape.

Japan faces competition in key export sectors

Japan, another key player in the Indian market, is also likely to feel the impact of the India-UK FTA. In 2024, Japan exported $19.9 billion worth of goods to India. With the India-UK FTA now in place, about 2.2 per cent of Japan’s exports, or roughly $440 million, could face competition from lower-cost UK products. These include machinery, chemicals, and electronics, areas where both Japan and the UK have competitive stakes.

The European Union, which exported $48.3 billion in goods to India last year, will also face some competition. Although the impact on EU exports is more limited, at around 1.7 per cent of its total shipments to India, the UK’s improved market access could still challenge EU exporters in certain sectors, such as luxury goods and food products.

Strategic recalibration of trade alliances

The India-UK FTA represents a strategic recalibration for both nations. For India, the deal offers access to advanced industrial and medical technologies at lower costs and presents new opportunities for Indian businesses to expand globally, especially in textiles, footwear, and pharmaceuticals. It also underscores India's growing role as a major player in international trade, seeking to diversify its trade partnerships beyond traditional allies like the US and Japan.

The deal is expected to boost UK exports to India by 60 per cent by 2040, adding £4.8 billion ($6.5 billion) annually to the British economy and providing a substantial boost to the UK’s GDP. The agreement is a key step in the UK’s post-Brexit strategy, aimed at strengthening trade ties with the world’s fastest-growing major economy.

India, meanwhile, is likely to see a surge in exports, particularly in the textile, gem, and jewellery sectors, as well as in agricultural goods like mangoes and grapes. The removal of tariffs on such products should help make Indian goods more competitive in the UK market.

(With inputs from agencies)