UK-India free trade deal cuts tariffs, targets £25.5B trade boost by 2040

The United Kingdom and India have concluded a landmark Free Trade Agreement (FTA) that aims to significantly boost bilateral trade and reduce tariffs across key sectors.

Finalised after more than three years of negotiations, the deal marks Britain’s most substantial trade pact since leaving the European Union and is expected to increase bilateral trade by £25.5 billion annually by 2040.

Key highlights: Boosting bilateral trade between major global economies

The UK government estimates that the FTA will contribute an additional £4.8 billion to the British economy annually by 2040.

India, currently the UK’s 11th-largest trading partner, accounted for £42.6 billion in bilateral trade in 2024.

The agreement opens the door for deeper economic ties between the world’s fifth and sixth-largest economies, with expectations to double goods trade over the next decade.

Prime Minister Narendra Modi hailed the agreement as a “historic milestone” and tweeted that it would deepen the India-UK Comprehensive Strategic Partnership, fostering innovation, investment, job creation, and trade. UK Prime Minister Keir Starmer called it a “new era for trade and the economy.”

Major tariff reductions on whisky, autos, and medical devices

A central pillar of the agreement is a comprehensive reduction in import tariffs across both countries.

India, known for its high import duties, will reduce tariffs on 90% of UK imports, with 85% becoming fully tariff-free within ten years.

• Alcohol: Tariffs on whisky and gin will drop from 150% to 75% initially, and then fall further to 40% over the next decade, benefiting the UK’s Scotch whisky industry and consumers in the world’s largest whisky market.
• Automobiles: India will reduce tariffs on UK car imports from over 100% to 10% under a quota system.
• Medical and consumer goods: British exports such as medical devices, cosmetics, electrical machinery, chocolate, biscuits, and salmon will face significantly lower duties.

The UK government estimates India’s tariff concessions will initially save British exporters over £400 million a year, doubling over the next 10 years.

Additional agreements: Social security and investment protection

The deal also includes two major side agreements—

A Bilateral Investment Treaty to protect cross-border investments and ensure fair treatment of investors, and

The Double Contribution Convention Agreement aims at eliminating the need for Indian professionals working temporarily in the UK to contribute to both Indian and British social security schemes.

This social security arrangement is especially beneficial for Indian professionals who previously received no benefit from contributions made during short-term UK assignments.

Negotiation journey: From Brexit hopes to final deal

Launched in January 2022, the trade talks had seen 14 rounds of negotiations.

The process was marked by political instability in the UK, with four prime ministers in office since the talks began, and elections in both countries in 2024.

Despite these challenges, negotiators eventually found common ground on trade, investment, and mobility.

The trade deal also comes at a time when both London and New Delhi are navigating shifting global trade dynamics, particularly in response to US tariffs under former President Donald Trump, which disrupted traditional supply chains and motivated countries to diversify trade partnerships.

What does this mean for India-UK relations and global trade?

The conclusion of this FTA is not just an economic milestone but also a diplomatic signal that both India and the UK are committed to long-term strategic and economic cooperation.

The agreement is seen as a model for future trade pacts involving emerging markets and developed economies.

As global trade realigns, both nations are now better positioned to lead in areas such as digital trade, innovation, and sustainable development.

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