In a major boost to bilateral economic ties, India and the United Kingdom signed a comprehensive Free Trade Agreement (FTA) in May 2025. This, according to CareEdge Ratings, is expected to propel annual trade growth between the two countries by nearly 15 per cent annually.
Formalised in May 2025 after three years of negotiations, the agreement eliminates tariffs on 99 per cent of Indian exports to the UK and 90 per cent of UK goods imported to India, with wide-ranging benefits across textiles, engineering, gems and jewellery, as well as the import of products from the UK, including Scotch whisky, luxury cars, and medical devices.
D Naveen Kumar, Associate Director, CareEdge Ratings, said, “Indian exporters will gain competitiveness, while consumers will enjoy more choices at better prices. This landmark FTA also fosters investment, joint ventures, and collaboration in the service sector, thereby deepening economic ties.”
A look at import-export dynamics
Currently, India-UK trade accounts for approximately 2 per cent of India’s total trade, underscoring an underutilised partnership given the size and potential of both economies. The trade between two countries has shown consistent upward momentum, driven by a 10-12 per cent CAGR. While there was a decline in 2020 and 2021, it was primarily attributed to factors such as the global recession and supply chain disruptions, largely arising from the COVID-19 pandemic and Brexit, among others.
Now with the implementation of the FTA, considering a growth rate of about 15 per cent (ICRA’s projection), India’s exports and imports to and from the UK are expected to reach approximately GBP 45 billion and GBP 30 billion, respectively, by 2030, factoring in the aspect that the FTA will come into effect in a year, the brokerage report maintained.
A boost to India’s export ecosystem
Per the terms of FTA, Indian exporters would benefit from improved market access, stable supply chains, increased competitiveness, higher volumes and new avenues for growth. The FTA is expected to boost India’s exports by cutting tariffs and easing trade barriers, making it easier for Indian products to enter the UK market at more competitive prices. This will help increase demand for Indian goods in the UK.
Additionally, this is also proving to be a sigh of relief for exporters who have been dealing with sluggish sales and uncertainty over possible US tariffs. According to the agreement, 99 per cent of Indian tariff lines—representing nearly the entire trade value—will enjoy duty-free access to the UK market. Currently, most of the products face import duties ranging from 4 per cent to 18 per cent in the UK.
Impact on India’s imports from the UK
Now if we talk about India’s imports from the UK, key sectors such as automobiles, whisky, industrial machinery, and pharmaceuticals, will see significant gains through steep tariff reductions and simplified regulations. For instance, the tariff on Scotch whisky, previously as high as 150 per cent, has been halved and will gradually fall to 40 per cent, making premium UK spirits more affordable to Indian consumers. Likewise, luxury carmakers from the UK are set to gain from a sharp drop in import duties—from 100 per cent to just 10 per cent—making it easier for them to offer competitive prices in India’s high-end automobile market. The deal also supports the UK’s exports of medical devices and green technologies, with reduced import duties and regulatory streamlining expected to drive up demand across Indian industries.
For India, CareEdge Ratings said, the impact of increased UK exports is multifaceted. Indian consumers are poised to benefit from increased access to high-quality goods, including premium alcohol, advanced healthcare equipment, and cutting-edge technology. The influx of modern British machinery and industrial tools could further support India’s ‘Make in India’ initiative by enhancing local production capabilities.
Additionally, increased trade in services, especially in education and professional sectors, may strengthen India’s human capital through deeper collaboration with UK institutions. “While Indian domestic producers may face stiffer competition in certain segments, the overall effect is expected to improve product quality, broaden consumer choice, and deepen the country’s integration into global value chains,” the analysis report maintained.
A look at sectoral impact
Textile: Currently, India holds a 6 per cent market share in the UK’s RMG imports, while Bangladesh, Turkey, Cambodia, Vietnam, Italy enjoy duty-free access, giving it a 12 per cent tariff advantage over India. With the FTA in place, India will also now have a clear 12 per cent duty advantage over China, which holds the largest market share in the UK’s RMG imports. This deal will create a level playing field for India vis-à-vis key competing nations for accessing the nearly $20 billion RMG market of the UK. India is expected to double its market share from 6 per cent in CY24 to 12 per cent in the UK’s RMG imports, translating into an incremental annual export opportunity of around $1.1-1.2 billion in the near to medium term, CareEdge Ratings said.
Electricals and Engineering Exports: The tariffs range from 8 per cent to 14 per cent for various electrical and engineering goods. With their removal under the India-UK FTA, Indian manufacturers are poised to gain a clear competitive edge over other global suppliers. Major products exported to the UK include steel and aluminium products, construction and electrical machinery, automotive components, scientific instruments, and more. “Beyond trade, the agreement is also expected to drive foreign investment and encourage joint ventures in these sectors. CareEdge Ratings expects this to result in a 15 per cent annual increase in exports until CY30,” it said.
Gems and Jewellery: The India–UK FTA is poised to create substantial opportunities for Indian gems and jewellery makers by tapping into the UK’s affluent consumer base and well-developed luxury market. This agreement is expected to drive demand for handcrafted products, benefiting both large exporters and MSMEs, skilled artisans, and independent designers. Reducing the current tariff levels, which in some cases can reach up to 4 per cent, offers Indian exporters a competitive edge over countries like China and Thailand. CareEdge Ratings predicted exports to increase by over 15 per cent per annum until CY30, benefiting from the FTA.