Is India-UK FTA A Test for 'Make in India' & MSMEs?

India and the United Kingdom (UK) concluded their long-pending Free Trade Agreement (FTA) this week, ending around three years of negotiations. Upon finalising the deal, the UK government projected that the new trade agreement is projected to boost annual bilateral trade between India and the UK by £25.5bn, from 2040 onwards.

The Trade between the two nations totalled £42.6bn in 2024. During the same period, the UK exports to India amounted to £17.1bn while imports stood at £25.5bn. Britain also said that, since its exit from the European Union in 2020, this is the “biggest and most economically significant” bilateral trade agreement it has signed.

Earlier, the Outlook Business reported that due to US President Donald Trump's tariff threats, there was a rush among countries to diversify their trade routes and close some of the ongoing FTAs. India held trade talks with over 10 countries in March alone, including the EU.

India's Gains

India will gain tariff elimination on about 99% of the tariff lines, covering almost 100% of the trade value. On implementation, the UK tariffs on footwear, textiles, automobile components, electrical machinery, minerals and base metals—currently in the 2-18% rate—will be eliminated, the commerce ministry said.

"From an agri-business and food security perspective, it is reassuring to note that India has prudently excluded sensitive agricultural products such as dairy, apples, and cheese from tariff concessions, demonstrating a strong commitment to safeguarding the livelihoods of its farmers and maintaining rural economic stability," said Chirag Jain, partner and food processing industry leader at Grant Thornton Bharat.

Furthermore, the UK also agreed to one of India's long-standing demands. Under the Double Contribution Convention, skilled Indian workers employed in the UK and their employers will be exempted from paying social security contributions for three years.

Make in India, But…

However, concerns have been raised regarding the agreement's impact on India's government procurement (GP) market. Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), highlights that India is under increasing pressure from FTA partners, particularly the UK and the EU, to open its GP market and grant national treatment to foreign firms.

India, under the FTA, has agreed to open its central GP market, allowing UK firms to bid for tenders. Those with at least 20% UK content will be treated as 'Class 2 Local Suppliers' under India's 'Make in India' policy, a designation previously reserved for Indian firms. The UK becomes the first country where a foreign country has receive legally guaranteed access to India’s central GP market at such a vast scale. GTRI points out that allowing UK firms to compete on near-equal terms could crowd out Indian Micro, Small, and Medium Enterprises [MSMEs], which depend heavily on protected access to government contracts.

Uneven Playing Field

"While UK companies gain broad access to India’s procurement system, Indian firms remain largely excluded from the UK’s closed and highly competitive GP market. With little reciprocal benefit, this sets a dangerous precedent for future FTAs and weakens India's leverage to defend domestic interests," Srivastava emphasises.

India’s GP market is one of the largest in the world, estimated at nearly $600bn annually, or approximately 15% of gross domestic product (GDP). Even as this drives development across major sectors like infrastructure, healthcare, power, education, transport and defense, GTRI underlined that GP is more than just a budgeting tool—it. "It is a critical industrial policy instrument, used to promote local manufacturing, build MSME capacity, and advance national programs like ‘Make in India’ and ‘Atmanirbhar Bharat’," Srivastava notes.

In contrast, Indian companies face stiff barriers in the UK’s closed procurement system, with limited chances of success due to small scale and lack of familiarity. GTRI noted that only £20bn or less of UK procurement is awarded to foreign bidders.

"This imbalance is not just economic—it is strategic. Allowing foreign firms to compete on equal footing within India weakens the policy tools," Srivastava explains.

Jain also expects that going forward, there might be a broader trend of India negotiating FTAs that open high-value markets while drawing clear red lines to protect critical domestic sectors.