Blueprint for Shared Future?

On July 24, 2025, India and the United Kingdom signed a landmark Free Trade Agreement (FTA), marking a significant milestone in bilateral relations between the two nations. After three years of rigorous negotiations, Prime Minister Narendra Modi and UK Prime Minister Keir Starmer inked the pact at Chequers—the British Prime Minister's country residence.

The agreement is expected to be ratified and implemented in early 2026, pending UK Parliament approval. The deal marks a significant milestone in bilateral relations between the two nations, with both countries anticipating substantial economic benefits.

Key Aspects of the Deal

The agreement includes significant tariff reductions on British products sold in India, with 90 per cent of UK products seeing tariff cuts and 85 per cent becoming tariff-free within a decade. The UK will eliminate tariffs on 99 per cent of Indian exports, benefiting sectors like textiles, footwear, and food items. The FTA is expected to boost bilateral trade between the countries by USD 34 billion annually by 2040, with the UK anticipating a GBP 4.8 billion annual GDP gain and wages expected to rise by GBP 2.2 billion.

Indian export-driven sectors, foreign direct investment, and overseas remittances are also likely to benefit from the agreement. The FTA's provisions on services and mobility will benefit both countries, with Indian professionals gaining greater access to the UK market and UK companies benefiting from India's skilled workforce.

Services, Mobility & Investment

The agreement eases mobility for Indian professionals, including contractual service suppliers, independent professionals like yoga instructors and musicians, and IT experts. Indian workers temporarily in the UK will be exempt from paying National Insurance contributions for up to three years. UK companies will have access to Indian public procurement tenders worth around GBP 38 billion annually.

The FTA includes significant commitments in the services sector, especially in IT/ITeS, professional services, financial services, and education. The agreement recognises 36 service categories under "Contractual Service Suppliers" and 16 for "Independent Professionals," easing skilled labor mobility. The Double Contributions Convention exempts Indian workers in the UK from paying both countries' social security contributions for up to three years, benefiting over 75,000 professionals and reducing operational costs for Indian service exporters.

Other Economic Benefits

The agreement includes cooperation in areas like defense, clean energy, education, innovation, and climate change.

The UK-India Vision 2035 initiative aims to promote green trade and facilitate clean growth, making it easier to trade in renewable energy equipment. The agreement promotes good regulatory practices, enhances transparency, and ensures resilient supply chains. Both nations have reaffirmed their commitment to strengthening economic cooperation and working together to address global challenges.

Geopolitical Calculations

The India-UK FTA holds significant geopolitical implications for both nations. For the UK, the agreement is a key component of its post-Brexit foreign policy strategy, particularly its Indo-Pacific tilt. By strengthening ties with India, the UK aims to diversify its trade beyond the EU and assert its relevance in a rapidly changing Asia.

From India's perspective, the FTA is part of its broader strategy to assert leadership in the Global South while balancing relations with Western powers. However, India must navigate this carefully, considering its trade sensitivities with China, the EU, and its commitment to multilateralism within forums like BRICS and the G20.

Navigating the Future

The India-UK FTA presents a promising yet complex roadmap, offering opportunities for growth, employment, and deeper strategic ties between the two democracies. However, tempering expectations with realism is essential. Challenges persist, particularly regarding data privacy and digital sovereignty. India's strict data localisation rules may pose difficulties for UK tech firms navigating the regulatory environment, despite trade liberalisation.

Another point of contention is carbon tax exemptions, which could impact Indian exports like steel and aluminum, potentially creating a non-tariff barrier. India has resisted including such policies in the agreement, and ongoing discussions will determine how these issues are addressed. To ensure the FTA yields equitable outcomes, both sides must prioritise transparency, stakeholder consultation, and robust safeguards for vulnerable sectors.

Conclusion

The India-UK Free Trade Agreement marks a significant milestone in bilateral relations between the two nations. While challenges persist, the agreement offers opportunities for growth, employment, and deeper strategic ties. By prioritising transparency, stakeholder consultation, and robust safeguards for vulnerable sectors, both nations can ensure the FTA yields equitable outcomes. The agreement has the potential to become a genuine instrument of inclusive, sustainable, and mutually beneficial growth, fostering a stronger partnership between India and the UK.

As the agreement is implemented, both countries will need to work together to address emerging challenges and ensure that the benefits of the FTA are shared equitably. With careful planning and cooperation, the India-UK FTA can become a model for future trade agreements, promoting economic growth, innovation, and strategic cooperation between nations.

Rev. Dr. John Felix Raj, SJ is the Vice Chancellor, and Dr. Sovik Mukherjee is an Assistant Professor of Economics in the Faculty of Commerce and Management, both at St. Xavier’s University, Kolkata. Views expressed are personal