India-UK FTA offers clear benefits, but long-term impact depends on execution and political will

Indian Express

25-07-2025

Written by Soumya Bhowmick
On a warm July afternoon at Chequers, Prime Ministers Keir Starmer and Narendra Modi finally signed the Comprehensive Economic and Trade Agreement (CETA), which negotiators from London and New Delhi have been pursuing since 2022. The deal is the largest the UK has sealed since Brexit and India's first with a G7 economy in over a decade, marking the end of a stop-start process that spanned four Indian budget cycles and two British prime ministers.
For London, the agreement is intended to deliver the 'Global Britain' dividend that has eluded successive Conservative governments since the United Kingdom departed from the European Union. Labour's new leadership can now point to preferential access to a market of 1.4 billion people for sectors ranging from premium spirits to cutting-edge aerospace. At the same time, India gains early access to European markets just as its export-led 'Make in India for the World' strategy accelerates. Strategically, the pact aligns neatly with the wider India–UK Roadmap 2030, which already encompasses cooperation on climate action, critical minerals, and maritime security, providing both capitals with a rules-based alternative to supply-chain dependence on China.
At the heart of CETA lie steep tariff cuts. Average Indian duties on British goods drop from around 15 per cent to just 3 per cent on 90 per cent of tariff lines, with the eye-catching reduction on Scotch whisky — from 150 per cent today to 75 per cent immediately and 40 per cent over ten years. High-end cars arriving from the UK will see levies plummet from well over 100 per cent to 10 per cent within a quota of 25,000 units, and British salmon, chocolates, and cheese will enter on near-zero tariffs. In return, the UK eliminates duties on almost every Indian export, from labour-intensive textiles and leather to gems, generic pharmaceuticals and marine produce.
While India–UK trade currently represents a relatively modest share of each country's overall external sector — accounting for approximately 2.4 per cent of the UK's total trade and about 1.8 per cent of India's combined merchandise and services trade as of 2024 — the bilateral relationship has demonstrated consistent upward momentum. Investment linkages are equally significant, reflecting a mutually reinforcing economic interdependence supported by a dynamic ecosystem of transnational firms.
Against this backdrop, the proposed trade agreement carries both symbolic and material promise. The UK Treasury anticipates an annual GDP increase of approximately £4.8 billion by 2040, alongside investment and export gains valued at £6 billion. Concurrently, India's Ministry of Commerce projects a potential expansion of up to US$34 billion in bilateral trade over five years. Though these figures may appear modest in terms of aggregate GDP — translating to less than half a percentage point of output for either country — they hold considerable significance at the sectoral and regional levels. Targeted tariff reductions and regulatory alignment are poised to deliver significant benefits for key constituencies, including Scottish distilleries, Midlands car manufacturers, Tirupur knitwear exporters, and India's rapidly growing processed food and marine sectors.
Still, the agreement leaves several concerns unaddressed. Delhi had lobbied strongly for a more expansive 'Mode 4' mobility framework to facilitate the movement of its IT professionals — seeking concessions on par with those granted to Australia. However, Britain's domestic immigration politics constrained the scope of the offer. Meanwhile, Britain's financial and legal sectors are frustrated by the absence of the preferential access they enjoy under the UK-Australia deal, just as Indian agricultural exporters continue to face rigorous sanitary and phytosanitary checks on goods like mangoes, chillies, and seafood.
Crucially, the bilateral investment treaty, intended to anchor investor-state dispute settlement provisions, remains under negotiation, leaving key protections undefined. The agreement's implementation is also not immediate — it must first pass through parliamentary scrutiny in Westminster and receive Cabinet approval in New Delhi — a process that could be delayed if domestic lobbies or legislators seek exemptions. India was also unsuccessful in securing an exemption from the UK's forthcoming Carbon Border Adjustment Mechanism, which could result in future tariffs on carbon-intensive exports.
Moving forward, several critical dimensions merit attention: Whether subnational actors such as Maharashtra or Gujarat design targeted incentive frameworks to optimise access to UK public procurement markets; how India's existing goods trade deficit with the UK shapes domestic political discourse, particularly if imports of Scotch whisky or luxury vehicles expand significantly; and whether a potential digital trade protocol can facilitate UK fintech integration with India Stack's public digital infrastructure, contingent upon India's willingness to revisit data localisation policies.
Finally, the India–UK trade pact may not constitute a transformational macroeconomic breakthrough, but it holds considerable geopolitical significance and commercial relevance across a diverse array of sectors. The substantive value of the agreement will depend less on its formalisation at Chequers and more on the efficiency of its ratification processes, the robustness of regulatory implementation, and the extent to which both governments can resist domestic protectionist pressures that risk diluting the intended liberalising thrust.
The writer is a Fellow and Lead, World Economies and Sustainability at the Centre for New Economic Diplomacy (CNED) at Observer Research Foundation (ORF)