India–UK FTA: A New Chapter in Economic Partnership

Both India and UK share a robust and dynamic economic relationship, underpinned by deep-rooted business and investment ties. Indian industry plays an important role in UK economy. In 2024, Indian companies in UK were estimated to be 971, contributing to £1.17bn in total corporation tax. These enterprises had around 1,118,430 employees, therefore generating many jobs in UK.  

As per Dept of economic affairs, Govt of India, Overseas Direct Investment (ODI) from India to the UK amounted to USD 20.06 billion from April 2000 to February 2025, making the UK India’s 5th largest ODI destination and accounting for 6% of India’s total ODI during this period. In 2023, India was the source of 118 FDI projects in the UK, creating 8,384 new jobs.  The UK is the 6th largest inward investor in India, with a cumulative equity investment of USD 35.65 billion (April 2000 – December 2024), accounting for around 5 % of all foreign direct investment into India according to the latest data available with DPIIT.  The range of sectors attracting investment from UK are education, retail, consumer goods, healthcare, and infrastructure.

Over the past five years, India has maintained a positive trade balance with UK. India’s exports have increased from USD 8.74 billion in 2019-20 to USD 12.92 billion in 2023-24, displaying a CAGR of 10.28%. India’s imports from UK also increased from USD 6.71 billion in 2019-20 to USD 8.41 billion in 2023-24, growing at a CAGR of 5.81%.

Given the close relationship on trade & Investment and cooperation between the two countries, a Free Trade Agreement (FTA) was long due. The India UK FTA negotiations were launched in January 2022 under the ambitious Roadmap 2030 by the Prime Ministers of the two countries. Today, on 6^th May 2025, the agreement has been successfully concluded along with the Double Contribution Convention.

The agreement is expected to be a mutually fruitful agreement benefiting businesses of both countries. As per the preliminary modelling by Department for Business & Trade, Govt of UK, the 2040 projections of change in UK export to India is by £15.7 billion and Change in UK imports from India by £9.8 billion. This implies that by 2040, the agreement is estimated to increase trade by £25.5 billion.

Trade in Goods

As per the WTO data, India’s non agriculture exports to UK faces simple average tariff of 3.4% and weightage average tariff of 2.7%. Indian products on 73.4% of tariff lines enjoyed duty free exports. UK’s non agriculture products in India faced average tariff of 11.3% and weighted average tariff of 9.8%. India through this agreement would get tariff elimination on about 99% of the tariff lines covering almost 100% of the trade value.

Indian industry faces stiff competition in labour intensive sectors from countries such as Bangladesh which is a beneficiary of UK’s Developing Countries Trading Scheme Comprehensive Preference. Therefore, this trade agreement would ensure level playing field in these sectors. The FTA provides positive impact on manufacturing across labour and technology intensive sectors and opens up export opportunities for sectors such as textiles, marine products, leather, footwear, sports goods and toys, gems and jewellery and other important sectors such as engineering goods, auto parts and engines and organic chemicals. This will substantially improve Indian goods competitiveness in the UK vis-a-vis other countries.

Trade in Services

Services is considered as India’s area of strength. Indian IT companies have significant presence in UK. Given the bleak outlook of world trade due to growing uncertainties, the agreement with UK with a dedicated chapter on services would further strengthen India’s position in UK. IT/ITeS, financial services, professional services, other business services and educational services would further open up through this agreement. India professionals including Contractual Service Suppliers; Business Visitors; Investors; Intra-Corporate Transferees; partners and dependent children of Intra-Corporate Transferees with right to work; and Independent Professionals like yoga instructors, musicians and chefs would possibly get benefit through ease in mobility between the two countries.

Digitally Delivered Services

Going forward, the importance of digitally delivered services is bound to increase. Most of the goods can be ordered digitally, however not all can be delivered digitally. India exports of such goods increased from 92.48 billion in 2015 to 257.12 billion in 2023. These products/services are relatively less averse to the supply chain disruptions and geopolitical tensions. India through this agreement has secured significant commitments on digitally delivered services for Indian service suppliers, specially in professional services such as architecture and engineering, computer related services and telecommunication services.

Exemption from Double Contribution Convention

Another notable win for Indian professionals working for short time in UK is exemption from paying social security contributions in the UK for a period of three years under the Double Contribution Convention. This will reduce costs for Indian service providers and strengthen their competitiveness.

The successful conclusion of the India – UK FTA and the Double Contribution Convention marks a significant milestone in the deepening of economic ties between the two countries. The agreement enhances market access, expands trade opportunities in goods and services, fosters greater investment flows and professional mobility. This agreement addressing long-standing trade barriers, creating a more predictable and transparent business environment.