Bridging the Past & Future

On July 24, India signed the long awaited Free Trade Agreement (FTA) with the United Kingdom (UK) which proposes to remove taxes on the export of labor-intensive products such as leather, footwear and clothing, while making imports of whisky and cars from Britain cheaper, in a bid to double trade between the two economies to USD 120 billion by 2030. The two countries announced the conclusion of the negotiations for the trade agreement on May 6, 2025 after a series of consultations which began in 2022. Once the free trade agreement is signed, it will require approval from the British Parliament and India's Cabinet before it can take effect. It will take about a year for implementation after the signing of the deal. The India-UK FTA is projected to increase bilateral trade between the two countries by £25.5 billion annually, claimed Deputy Trade Commissioner for South Asia at the British High Commission. In 2024, bilateral trade between India and the UK in goods and services reached nearly £43 billion.

Genesis of the India-UK FTA

The UK-India trade relationship stretches back some 400 years, with the UK initially being a huge importer of spices, textiles and food items. By the 1850s, when Britain colonised India, the percentage of total UK trade in goods with India was 8.5 per cent of UK’s trade. Throughout the early decades of the 20th century, the UK enjoyed a huge surplus in bilateral trade, but with India’s independence it declined. By the 1970s, UK-India trade had fallen to just under 2 per cent of total UK trade in goods. UK’s imports from India rose by 250 per cent in the decade 2000-2010, and its exports to India rose by 140 per cent. Participating in a debate (January 25, 2012) on UK-India Trade in the British Parliament, Stephen Hammond—a Conservative MP—referred to the Queen's 2010 speech in which she had explicitly cited India as a destination for the UK to strengthen trade between the two countries.

In 2003, during the third Vajpayee government (1999-2004), discussions between the UK and India were initiated, focusing on regional trade agreements and their potential impact on trade liberalisation, particularly in the context of the WTO. While not specifically about a Free Trade Agreement (FTA) at that time, the discussions acknowledged the importance of ensuring such agreements to complement multilateral trade liberalisation.

An UK-India Joint Economic Trade Committee (JETCO) was established on January 13, 2005 to develop a strategic economic relationship. Then the India UK CEO’s Forum was launched in July 2010, during the visit of the then Prime Minister of the UK, David Cameron, to India, with the objective of making recommendations to governments for increasing the level of bilateral trade and investment between the two countries. Subsequently, India-UK Financial Partnership (IUKFP) was launched in July 2014. In 2022, consultations on India-UK FTA began. India-UK trade data indicate the following trends:

✼ India’s trade surplus with the UK has grown marginally over the past decade. The trade surplus increased to USD 4.5 billion in FY2024 from USD 4.3 billion in FY2015.

✼ Merchandise trade between India and the UK increased at a CAGR of 1 per cent between FY2015 and FY2024, with imports increasing at a CAGR of 6 per cent compared to exports at a CAGR of 4 per cent.

✼ UK’s share in the total Indian merchandise imports was approx. 1 per cent for the past decade, whereas its share in the total Indian merchandise exports was approx. 3 per cent for the past decade.

✼ Total software services export (part of total services export) increased by approx. 10 per cent over past decade; however, exports to the UK rose by a higher approx. 12 per cent during the same period, boosting the UK’s share in total services exports.

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Concerns

While the UK government is euphoric on the prospect of tapping into India's massive public procurement market, estimated at a staggering USD 38 billion annually, the Indian trade analysts have flagged a few serious concerns due to its potential repercussions for domestic industries, notably the Micro, Small, and Medium Enterprises (MSME) sector, and the flagship "Make in India" initiative. The UK firms will, for the first time, gain the ability to directly compete for Indian government contracts across crucial sectors such as transport, healthcare, construction, and green energy which will generate high quality jobs within the UK. Noted trade expert Biswajit Dhar voices a more important concern regarding the very principle of opening up public procurement to foreign entities. According to him, “This would put pressure on trade negotiators to grant concessions with other countries like the US and the EU, who have been demanding it. The domestic SME sector, which was limping back from the Covid-19 attack, now faces a daunting challenge”.

A study by Global Trade Research Institute (GTRI) reveals that the India-UK free trade agreement (FTA) would not yield any substantial benefits for India, as many of India’s exports to the UK already enjoy low or zero tariffs. On the contrary, the UK is likely to gain more as the UK exports face stiff tariffs in India, particularly on items like cars, Scotch whisky and wines. The FTA could lead to tariff reductions on these goods, potentially opening new opportunities for the UK.

India’s tariffs will continue to decline over a 10-year transition period. At the end of this, 85 per cent tariff lines and 66 per cent of the UK’s exports will enjoy tariff-free entry to India. On Labor and Environment standards, India is likely to face stiff regulatory barriers as the UK follows much stringent norms to protect their labor and environment. In addition to these, the UK is planning to implement the carbon border adjustment mechanism (CBAM) by 2027.

Strengthening the colonial linkage

Despite the fact that both India and the UK are members of the Commonwealth which has 56 members at present, this bloc had largely remained of low priority in the economic and strategic considerations of India till Narendra Modi became Indian Prime Minister in 2014.

India obtained the membership of the British Commonwealth when it got the ‘Dominion’ status from British Parliament on August 15, 1947. Though India became a republic in 1950, it chose to remain a member of the Commonwealth. The 'British Commonwealth' was renamed as 'Commonwealth' after eight former British colonies, Australia, Canada, Sri Lanka (formerly Ceylon), India, New Zealand, Pakistan, South Africa and the United Kingdom (UK), came together to form the new Commonwealth in 1949. That arrangement (London declaration) established the rule that the Commonwealth members must recognise the King or the Queen as the Head of the Commonwealth. As a founding member of the Commonwealth, following the death of Queen Elizabeth II, India observed a one-day state mourning on September 11, 2022, as a mark of respect. During this period, the national flag was flown at half-mast on all government buildings, and there was no official entertainment.

Currently, the UK is home to 1.86 million people of Indian origin, the UK’s diaspora dates to the 1950s labor shortages post-World War II, followed by family reunion waves in the 1970s. A 2024 research study identified a record 971 Indian-owned companies operating in the UK, up from 954 in 2023, with combined revenues of £68.09 billion, a strong increase on the £50.5 billion reported in 2023. These 971 companies employed 1,18,430 people, up from 1,05,931 in 2023, and paid £1.17 billion in corporation tax, compared with £944 million in 2023. The presence of a large number of Indian diaspora in the UK is a major driver of change in India’s foreign policy towards the UK and the Commonwealth.

Prime Minister Narendra Modi’s decision to attend the Commonwealth Heads of Government Meeting (CHOGM) in London in April 2018 underscored a change of approach towards a forum generally considered as a non-entity in Indian strategic circles, commented ORF. Even Modi’s predecessor, Manmohan Singh, decided to absent himself from the 2011 CHOGM summit in Australia, and the 2013 one in Sri Lanka.

After Brexit (January 2020), the UK has increasingly become isolated in Europe. India—its former colony and the largest economy in the Commonwealth—offered a good business opportunity. In South and East Asia, India has also lost its traditional friends to China which has aggressively expanded its economic and political presence. The absence of China in the Commonwealth offers a significant opportunity for India to align with other member nations. The UK-India FTA, if properly managed, could be a facilitator for a stronger engagement with the former British colonies.

The writer is a professor of Business Administration who primarily writes on political economy, global trade, and sustainable development. Views expressed are personal