UK-India FTA : Labour's Trump card in a world of diplomatic quicksand

Time of India

16-05-2025

The UK-India Free Trade Agreement, signed on May 6, 2025, represents more than just an economic transaction—it's a geopolitical masterstroke unlocking £25.5 billion in bilateral trade by 2040. For Labour, this deal serves as a strategic move, anchoring Britain to India's £4.19 trillion democratic powerhouse amid multiple global challenges. Post-Brexit Britain, having suffered a 15% drop in EU trade, desperately needed new markets. India emerged as the obvious choice over China's £14.9 trillion economy, which comes with significant diplomatic complications.
The FTA slashes India's prohibitive tariffs on UK whisky (150%) and automobiles (59-125%), creating access to a £1 billion whisky market and boosting services—which represent 80% of the UK's GDP and 42% of India's economy. The Double Contribution Convention further drives foreign direct investment, building on the UK's outward foreign direct investment stock in India of £17.4 billion and India's inward FDI stock in the UK of £13.1 billion as of 2023, the agreement is projected to increase UK GDP by £4.8 billion each year in the long term. This agreement provides crucial protection against American protectionism, where Trump's tariffs threaten British exports.
Labour's success stands in stark contrast to the Conservatives, who stalled talks since 2022 over visa negotiations and tariff reductions. Within just ten months, Starmer's government delivered results through strategic concessions on IT and healthcare worker mobility and targeted tariff cuts. The timing is significant—not occurring in a vacuum but amid a year of diplomatic turmoil and political reckoning for Britain. As the UK navigates fractured relationships with Israel, China, and Bangladesh while facing internal scrutiny over domestic scandals, the completion of the India deal signals a newfound strategic maturity in British foreign policy.
Navigating diplomatic minefields
The FTA triumph represents diplomatic finesse, pivoting from Jeremy Corbyn's alienating blunders to Keir Starmer's strategic acumen. Corbyn's 2019 Kashmir resolution and apparent Khalistani sympathies had damaged relations with both the Indian government and the 1.9 million British Indian diaspora, costing Labour crucial votes in areas like Leicester and Birmingham. For Starmer, elected in July 2024, the FTA offered an opportunity to restore India's trust while recapturing diaspora support, strengthening Labour's electoral foundation.
British diplomacy has weathered significant challenges recently. Relations with China deteriorated following the Yang Tengbo espionage scandal and the detention of Liberal Democrat MP Wera Hobhouse in Hong Kong this April. Equally troubling was the rupture with Israel after Israeli forces detained Labour MPs Abtisam Mohamed and Yuan Yang while they sought to visit Gaza for a humanitarian mission — a diplomatic embarrassment that exposed the consequences of unsanctioned regional engagement. This incident stood in stark contrast to Labour's earlier stance in 2023, when the party controversially refused to support a parliamentary ceasefire bill, a decision that fractured internal unity and alienated segments of its electoral base in key constituencies. Taken together, these episodes reveal how Labour's international positioning has repeatedly cornered it into diplomatically fraught situations while fracturing domestic unity, forcing the party to seek alliances it could maintain without incurring political cost.
In contrast, Labour crucially avoided Canada's fate, where Khalistani tensions — intensified by Ottawa's 2023 accusations against India over a Sikh activist's killing — collapsing the diplomatic ties of the two countries. The case of Jagtar Singh Johal, a British Sikh detained in India since 2017, posed a similar test of resolve. Conservative governments faltered under advocacy pressure, Starmer's leadership favoured quiet diplomacy, containing the issue while safeguarding £38 billion in prospective trade deals. This approach reflected a calculated restraint: avoiding inflammatory rhetoric, downplaying nationalist provocations, and prioritising economic engagement. The contrast with Canada's mishandling of the Hardeep Singh Nijjar affair is striking — where Ottawa's misstep led to a diplomatic freeze, Britain navigated parallel tensions with notable composure. Yet whether this careful balancing act can shield Labour from future diplomatic entanglements without alienating core constituencies remains to be seen.
India as the natural ally in a volatile landscape
South Asia's volatile landscape left Britain with few credible partners — and made India not just a preferred choice, but the indispensable one. Pakistan's economy struggling at $373.08 billion in nominal terms for 2024, and further isolated after the 2025 Pahalgam attack, posed an untenable diplomatic and commercial risk. Bangladesh, meanwhile, descended into democratic instability following Sheikh Hasina's ousting in 2024, with a 10% export decline and a corruption scandal so politically radioactive it cost Labour MP Tulip Siddiq her ministerial post in January 2025. In such a fractured regional order, India alone offered scale, stability, and strategic heft.
At home, Labour faced parallel crises. Elon Musk's incendiary posts on X about grooming gang scandals reignited racialised debates around British-Pakistani networks and child exploitation, directly targeting Starmer and minister Jess Phillips. Combined with backlash over Labour's Gaza stance and eroding Muslim community support, the party's position on Pakistan — historically tied to diaspora sensitivities — grew increasingly untenable. In this atmosphere, the India deal became both an economic imperative and a political recalibration.
Crucially, Labour held firm. The free trade agreement was neither derailed by anti-Modi critics nor diaspora demands over Kashmir. That resilience reflected a hardheaded realism: recognising India not through the lens of Western ideological purism, but as it stands — a rising power, a Quad member, and a necessary economic ally in an unstable world.
Economically, India's value was unambiguous. The FTA's focus on SMEs — responsible for 60% of UK jobs and 30% of India's GDP — alongside service sector alignments, promised resilience through regulatory compliance with India's 2023 Personal Data Protection Act and Britain's 2027 Carbon Border Adjustment Mechanism. But beyond market access, the deal marked a deeper strategic pivot: Britain choosing pragmatic engagement over performative diplomacy, reclaiming diaspora confidence not through rhetoric, but by securing tangible, future-facing partnerships. In a year marred by diplomatic setbacks and domestic political storms, India emerged as the indispensable partner Britain could neither afford to alienate nor replace — a sober reminder that in foreign policy, necessity often trumps sentiment.
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