Forging Trade Ties in a Fragmented World

Amidst the drumbeats of a warlike situation and the noise of news around, a critical trade agreement that took years of careful negotiation between India and UK on progressive trade ties saw its light of the day. This is a major step for India (and the UK) given the broader areas the agreement encapsulates, especially at a time when protectionist headwinds across the globe are reorienting liberal trade principles and its rules of the game. The newly signed India–UK trade agreement also stands out as a bold strategic shift.

As the fifth and sixth largest economies in the world, this free trade agreement (FTA) seeks to build on a critical foundation: in 2024, 971 Indian-owned companies operated in the UK, up from 954 the previous year, generating £68.09bn in combined revenues and employing over 1,18,000 people. These firms also paid £1.17bn in corporation tax, reflecting India's deepening commercial footprint in the UK. This move comes at a time when countries are reassessing their global trade dependencies and scrambling to future-proof supply chains and market access.

With total trade in goods and services between India and the UK standing at £42.6bn in 2024, the deal aims to increase this figure by £25.5bn annually over the long term. The scale of this increase is not merely symbolic, it reflects deep structural reforms in tariff regimes and market access rules.

India has secured reductions on approximately 99% of tariff lines for its exports to the UK, while Britain will see more than 90% of its export tariff lines slashed, including complete tariff elimination for 85% within ten years. Tariffs on whisky and gin will fall from 150% to 40% by the end of the decade, and tariffs on British cars exported to India will reduce from 100% to 10% under a quota system.

This is also UK’s largest trade agreement since Brexit from the European Union (EU) and the first agreement concluded under Prime Minister Keir Starmer’s government. Coming less than a year into his tenure, the deal offers a vital political and economic win at a time when domestic growth has remained sluggish. It signals Britain’s ability to strike consequential trade agreements independently of the EU and reposition itself as a global trading nation.

For India, which surpassed the UK to become the fifth-largest economy in 2021, the deal is equally strategic. It burnishes India’s credentials as an alternative investment destination to China, expands access for its IT and services sectors, and enhances its global trade stature. This is also India’s first major FTA with a Western country in over a decade, following earlier pacts with the Association of Southeast Asian Nations (Asean) and the UAE, and underscores a renewed push for deeper global integration.

More importantly, it signals a conscious maturing of India’s trade policy: a shift from defensive posturing to a more confident, calibrated embrace of trade liberalisation. FTAs are no longer pursued solely for goods market access, but are increasingly being structured around services, technology partnerships, talent mobility and cross-border investments, areas where India has strong comparative advantages. In doing so, India positions itself not just as a manufacturing hub, but as a strategic node in the reconfiguration of global value chains.

Beyond Tariffs: How the FTA Rewires India’s Trade Architecture

While headlines may focus on whisky tariffs and symbolic handshakes, the real value of the India–UK Free Trade Agreement lies in its sector-specific engineering, particularly for India. A close reading of current trade patterns reveals the underlying logic. India’s goods exports to the UK are clustered around mid-value, high-employment sectors like clothing, telecom equipment, pharmaceuticals and iron and steel.

These are not luxury goods but core outputs of India’s MSME ecosystem, the engine room of jobs and grassroots industrial growth. Tariff-free access to a high-income market like the UK gives these sectors new oxygen at a time when global demand is volatile and competition from Southeast Asia is rising.

The services story is even more revealing. India is not merely selling goods; it is embedding itself into the UK's business backbone. With billions in services imports from India, particularly in other business services and telecom and IT, Britain already relies heavily on Indian expertise. The FTA deepens this interdependence.

It simplifies visa procedures, introduces social-security exemptions for Indian workers on short-term assignments and enhances legal certainty around data, intellectual property and digital trade, critical for sectors like software exports and fintech. These are not abstract reforms; they directly address long-standing friction points for Indian service exporters, who will now find it easier and cheaper to do business in the UK.

What also makes the agreement strategically potent is its quiet impact on India’s rising import basket. While India exports high-volume, mid-margin goods, it imports precision-intensive capital goods from the UK, mechanical power generators, industrial machinery and non-ferrous metals.

These are vital for upgrading India's manufacturing base. Lower input costs, thanks to tariff cuts, can catalyse efficiency gains for Indian firms across sectors, including renewable energy, infrastructure and heavy industry, key priorities under India’s Make in India and infrastructure push.

More broadly, the FTA signals India's shift from a defensive trade posture to one that is strategic and assertive. With negotiations ongoing with the EU and the US, this deal acts as both a credential and a bargaining chip. It proves India can negotiate complex FTAs with major Western economies on equal footing, balancing liberalisation with domestic safeguards.

Notably, 100 Indian companies in the UK achieved 10% or more revenue growth in 2024, the highest ever recorded, spanning sectors like automotive, health care and technology. This underscores India’s export-ready strength and positions its companies to leverage the FTA’s market access opportunities more effectively than ever before. It also responds to a wider global shift, where supply chains are moving away from China and countries like India are being courted as long-term partners.

In this light, the India–UK FTA is not just a chapter in bilateral relations, it is a carefully drafted paragraph in India’s broader trade story, where economic policy, global ambition and domestic priorities are finally beginning to align.

Balancing the Ledger: Strategic Gains Meet Structural Friction

Yet, for all the optimism and strategic symbolism, the FTA s not without its trade-offs, particularly for India. A closer inspection reveals asymmetries that could dilute its near-term gains. For one, projections suggest a greater GDP boost for the UK than for India, a reflection not of unequal negotiation, but of structural differences. The UK’s exports are highly specialised and capital-intensive, making them more elastic to tariff shifts. In contrast, India's gains rely heavily on goods like textiles and processed foods, sectors more exposed to price competition and non-tariff barriers (NTBs) like stringent quality certifications, labelling norms and sanitary regulations. These are not easily dismantled by headline tariff reductions, and for many Indian exporters, the true cost lies not in customs duty but in the labyrinth of compliance.

This is especially sensitive in agriculture and small-scale manufacturing, where the impact of liberalisation is often uneven. The phased reduction of tariffs on British alcohol, dairy and lamb has sparked concern among domestic producer groups, who fear being undercut in price-sensitive rural markets. While the agreement includes safeguards and quotas, enforcement and responsiveness remain critical. India’s challenge will be to ensure that trade facilitation does not become trade displacement, particularly for farmers and small traders already navigating post-pandemic recovery.

Moreover, India's fragmented export ecosystem, dominated by MSMEs with limited institutional support, may find itself struggling to meet origin rules and compliance documentation. Unlike large corporates, smaller firms lack the technical bandwidth to navigate new paperwork, ESG standards and digital filing norms that accompany such FTAs. This administrative friction can translate into exclusion from benefits, ironically tilting the scale toward firms already privileged by scale and capacity.

And then there’s the long-term diplomatic consequence. By offering significant tariff concessions and visa access to a G7 economy, India sets a precedent. In forthcoming negotiations with the EU, US and Canada, these concessions may become the new floor rather than a ceiling, ratcheting expectations and reducing India's manoeuvrability in protecting sensitive sectors like agriculture, data sovereignty and pharmaceuticals.

In that sense, the India–UK FTA is as much about the gains as it is about managing the architecture of those gains. Its true test will lie in India’s ability to support exporters through regulatory reforms, sectoral support schemes and trade literacy. For India, the pivot to trade power must be as much about building muscle at home as it is about scoring wins abroad.

The Broader Play: Positioning India for a Multipolar Trade Future

The India–UK FTA is not just a bilateral accomplishment; it is a statement of intent embedded within India’s evolving trade doctrine. It marks India’s first major agreement with a Western economy in over a decade, and crucially, it arrives not in isolation but as part of a carefully sequenced playbook.

Coming on the heels of FTAs with the UAE and Australia, and with negotiations ongoing with the EU, the US, and the Canada-led (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) CPTPP, the UK deal functions as both template and signal: India is ready to engage with advanced economies on equal terms, but on its own terms.

It also aligns sharply with India’s broader export ambitions. The government’s $2trn export target by 2030 cannot be achieved without high-value market access, especially in Europe and North America.

The UK deal creates a framework to move beyond commodity-led growth into value-added manufacturing and high-skill services, both of which are essential for export durability. Simultaneously, it helps embed India within the evolving China+1 strategy, where global firms are diversifying supply chains and looking for stable, rules-based partners. By building trade links with the UK, India signals not only economic competitiveness but institutional credibility.

Ultimately, the success of the FTA will not rest on the text or spirit of the agreement but on India’s subsequent capacity to internalise, implement and scale its potential over time. If supported by targeted sectoral reforms, critical rise in trade logistical infrastructure and its MSME readiness, this deal could well become a major inflection point where India steps fully into its role, not as a reactive trading partner, but as a confident architect of the global trade order with developed nations too in the Global North.

The author is professor of practice and director, Centre for New Economics Studies, Jindal School of Liberal Arts and Humanities, OP Jindal Global University.

Ankur Singh, Geetaali and Gurnaaz Kaur contributed to this column.