FTA: ‘India To Be Import Led’
By Shivaji Sarkar
The recently-concluded Free Trade Agreement (FTA) between India and the United Kingdom marks a critical shift in India’s global trade architecture—expanding its reach into a major European economy while signalling a willingness to negotiate complex regulatory frameworks. Paired with India’s rupee line of credit to the Maldives, the FTA highlights a growing Indian ambition: to build a web of trade and currency-based diplomacy across continents and its own neighbourhood.
India-UK bilateral trade stood at $21.34 billion in 2024, with Indian exports to the UK rising by 12.6 per cent to $14.5 billion, and imports marginally increasing by 2.3 per cent to $8.6 billion. The trade balance currently tilts in India’s favour, showing a surplus of $5.94 billion. With the FTA, both countries aim to more than double trade volumes to $112 billion by 2030, although procedural hurdles and delayed UK Parliament and other trade and regulatory ratifications could push that target further out.
The agreement could lead to a shift in the Indian trade surplus as certain UK exports, such as automobiles, alcoholic beverages, and machinery, may see reduced barriers and increased access to the Indian market.
The UK sees a substantial increase in UK exports to India. According to the UK government impact assessment, India’s demand for global imports is estimated to increase to £2.8 trillion by 2050, making it the third largest importer in the world. The FTA’s improved market access and reduced regulation are expected to create major opportunities for UK businesses and consumers, the UK perceives.
According to the World Economic Forum, the deal is expected to generate over $34 billion in additional bilateral trade annually. The UK’s own projections suggest a 60 per cent rise in UK exports to India by 2040, and a 25 per cent increase in imports from India, potentially raising overall trade by 39 per cent, or £25.5 billion a year. Reduced regulations are expected to create major opportunities for UK businesses and consumers, the UK perceives.
India’s manufacturing and export sectors stand to benefit the most. The FTA slashes duties on 90 per cent of tariff lines, including textiles, leather goods, jewellery, engineering products, IT services, and processed food—industries where India has comparative advantage and a large SME base. This opens significant room for Indian farmers, fishermen, artisans, and small businesses to access a high-value European market.
India successfully resisted pressure to liberalize dairy imports, protecting domestic producers from competition with highly subsidized UK agri-business. In terms of job creation and rural income, this clause alone reflects New Delhi’s political calculus to support its agricultural backbone while expanding global market access.
Additionally, the rupee-credit line to Maldives, while a separate geopolitical tool, aligns with India’s strategy to promote rupee-based trade settlements—an experiment that could reduce dollar dependency in regional trade.
Despite the hype, the FTA will not be immediately operational. British parliamentary ratification and multi-level regulatory vetting mean the deal will take at least a year—unlikely till mid-2026—to become enforceable. Even then, tariff reductions for sensitive sectors like alcoholic beverages and automobiles will be phased in over 10 years.
This delay dilutes some of the short-term benefits and keeps Indian exporters in a holding pattern. The agreement also contains a review clause, leaving open the possibility of future amendments, particularly if trade imbalances widen or domestic sectors face unforeseen disruption.
The question is who Gains in the UK—and what India should watch. The UK is betting on India’s expanding consumption base. It hopes to push exports of cars, premium liquor, cosmetics, and machinery—sectors where British firms have strong brands and pricing power. Tariffs on UK whiskies and gin will be cut from 150 per cent to 75 per cent initially, and 40 per cent after 10 years. Similarly, UK carmakers—including Jaguar (owned by India’s Tata)—will benefit from duty reductions from up to 110 per cent to 10 per cent under a quota system.
However, these gains may not translate into cheaper goods for Indian consumers, at least not in the near term. The primary beneficiaries of these cuts will be importers and foreign manufacturers, as India’s indirect taxes, distributor margins, and local logistics costs remain high.
Also, increased market access for UK exports could eat into India’s current trade surplus. Sectors like automobiles, alcohol, cosmetics, and high-end electronics could see a surge in imports, shifting the trade balance—unless India rapidly upgrades its own domestic offerings and branding to match global benchmarks.
Indeed, there is a new template for global deals. The India-UK FTA also resets expectations for India’s future agreements. It moves beyond template FTAs signed with the UAE, Australia, ASEAN, Singapore, Mauritius, Malaysia, Mercosur, and EFTA. With the UK deal, India has negotiated harder, insisted on strategic exclusions (like dairy), and demanded more reciprocal benefits. It is also a shift away from over-dependence on one market like the US or China, and a repositioning towards a diversified, interest-based global trading strategy.
It reflects India’s growing confidence as an emerging power—one willing to engage with stringent regulatory regimes and push back where necessary, while keeping its domestic sectors safeguarded.
The India-UK trade deal is not a jackpot, but a calculated and strategic gain. It reflects ambition without recklessness, expansion without overexposure. India’s exporters, especially in textiles, food processing, and MSMEs, stand to win. But so do British firms in sectors where India still lacks price and brand competitiveness.
As with all FTAs, the true impact will unfold over years—not months. The agreement offers opportunity, but demands readiness. Indian businesses, regulators, and trade negotiators must now ensure that this opening is used not just to expand exports, but to upgrade quality, branding, and supply chains to stay competitive in a maturing global order.
The US pressures on India for drafting out a treaty on the pattern of the US-Malaysia trade may also have impact on many treaties. The US pact with Malaysia has almost changed matrix on multilateral deals. Malaysia has allowed free imports beyond the expectation of the US, says President Donald Trump.
It changes an international equation that India has with Malaysia. For decades, India and Indonesia stood shoulder to shoulder in global trade forums, but this now lies in tatters; Jakarta’s U-turn raises big questions for India.
The UK assessment impact has provisions for review in the case of India not growing at expected pattern, particularly if it fails to achieve the target. It means the UK could do a fresh review. There is more in realm of the future. — INFA