Indian prime minister makes UK state visit to sign landmark trade deal

The Guardian

5 days ago

India's prime minister, Narendra Modi, is visiting London to sign a landmark free trade agreement between his country and the UK, a pact viewed as a political and economic prize amid global trade tensions unleashed by the US president, Donald Trump.
For Britain, eager to score a post-Brexit win, the deal is its most economically significant trade agreement since leaving the EU. For India, it marks its first major free trade pact outside Asia. For both, analysts say, the agreement signals a long-term economic partnership.
'The UK and India, in many ways we have complementarities. We have had a historical relationship. It's good to have a deeper trade relationship,' said Indian economist Sanjaya Baru.
During Modi's two-day state visit starting on Wednesday, his fourth to the UK as prime minister, he will hold 'wide-ranging' talks with his counterpart, Keir Starmer, on trade, defence, technological cooperation and security, and will also pay a courtesy call on King Charles, according to an Indian government statement.
India stood firm on key demands during negotiations, winning concessions on work visas, recognition of professional qualifications, and exemptions from national insurance contributions for Indian nationals working temporarily in the UK, all longstanding sticking points.
Modi, accompanied by his commerce minister, Piyush Goyal, who led the negotiations, can claim India held its ground while the UK compromised, bolstering his message of India's rising global clout. However, the deal must still be ratified by both parliaments, likely delaying implementation until mid-2026.
Under the agreement, 99% of Indian exports to the UK, spanning gems, textiles, engineering goods, leather, garments, and processed foods, will face zero tariffs. In return, the UK will see phased tariff cuts on 90% of its exports to India. Duties on scotch whisky will fall from 150% to 75% immediately and to 40% over 10 years.
British cars, now facing tariffs of more than 100%, will see duties slide to 10% under a quota. Other gains include tariff relief on medical devices, pharmaceuticals, aircraft parts, and electronics.
India's government hopes the agreement will inject new energy into its Make in India drive and revive foreign direct investment, which has slowed significantly. 'More than 5m export-related jobs in India can be linked to UK exports,' said Amrita Saha, a research fellow at the Institute of Development Studies at the University of Sussex. 'Overall, I believe this agreement is a positive step for India's labour-intensive sectors,' she told the Hindu newspaper.
Crucially, India kept agriculture, an industry that employs more than 40% of its workforce, off the table. This red line for New Delhi has also stalled its trade talks with the US.
Still, only the broad contours of the agreement, which marks a significant departure from India's traditionally protectionist trade stance, are public. 'We will have to look at the fine print the morning after,' Baru cautioned.
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Some provisions, such as phased duty cuts on scotch and cars, could face backlash from domestic producers. Indian whisky makers have already voiced worries about 'unfair competition' from imports. Also, in a significant first, British firms will gain access to India's vast government procurement market, a potential breakthrough for sectors such as clean energy, transport, and infrastructure.
Notably absent from the deal are financial and legal services, as talks on a bilateral investment treaty, which would offer investor protections, remain unresolved.
Another sensitive issue, the UK's proposed carbon tax known as the carbon border adjustment mechanism (CBAM), was also left out. The policy, which would levy taxes on imports from countries with looser emissions rules, is seen by India as unfairly targeting developing economies.
For now, the two sides appear to have kicked that issue down the road. However, 'the carbon tax remains the elephant in the room. It could wipe out the benefits of the free trade agreement for Indian exporters,' warned Ajay Srivastava, head of the Global Trade Research Initiative in New Delhi.