The India-UK free trade agreement, arrived at after three years of talks, comes at a time of great churn in the global trade order. The concessions made by India to the UK are likely to set the base for its trade talks with the US, the EU and others. Therefore, the terms of this FTA assume importance, even though the trade volumes involved are small.

Here, the goods side looks adverse for India, but not the services side. India might have secured some market access in textiles, footwear, seafood and fruit (where duty cuts are significant), but the grand-sounding tariff reduction by the UK on 99 per cent of tariff lines covering almost all of India’s exports is not as great as it seems. This is because, according to analysts, of the $13.5 billion goods exports to the UK (in 2024), $7.5 billion comprises items that were zero-rated, anyway (medicines and petroleum). India’s goods trade surplus of $5 billion and an equally large one in services (on exports of $18.4 billion in 2024) is slated to fall over time, according to the UK government’s ‘technical note’ on the deal. But bilateral trade deficits alone cannot tell us whether a deal is working for India or not, as there could be larger positive economic fallouts.

Amidst controversy, India has agreed to a phased reduction in car import duty from 100 per cent to 10 per cent, with a quota in place. While it is true that the auto sector contributes a third of manufacturing GDP, it is unlikely that high-end British cars will upset the industry too much. In a future trade deal, auto sector (now mature and confident) and professional services may well be used as bargaining chips to secure access in other sectors or to protect sensitive ones such as dairy. The same holds true for ‘beverages’, such as whisky and gin. As for gains in services, Indian service providers who are temporarily in the UK and their employers need not pay social security contributions for three years after the FTA comes into force. Easier mobility has been promised for corporate and independent professionals. There have been “significant commitments” secured in digitally delivered services.

India has a basic problem in structuring any trade deal. Since its simple average tariffs at about 17 per cent are generally much higher than its counterpart (in the UK’s case it is less than 4 per cent), a sudden drop in tariffs to zero implies a sharper concession to the other side, with consequences for jobs and output. This strengthens the case for protecting sensitive sectors. The decision to allow UK participation in government procurement (12-15 per cent of GDP) may infuse competition and technology, but MSMEs should not be denied opportunities to participate. Government procurement was opened up with the UAE FTA, raising some valid concerns. It would now be hard for India not to offer this space in other FTAs. India should proceed cautiously on ‘TRIPS plus’ provisions in future talks while keeping its red lines intact. It is, after all, offering its immense market, and should not be chary of putting a price tag on it.

Published on May 15, 2025