WHAT

India and the United Kingdom have finalized a landmark Free Trade Agreement (FTA) on May 6, 2025, after over three years of negotiations. This agreement is poised to significantly enhance bilateral trade, aiming to boost annual trade by £25.5 billion by 2040. Trade between the two nations totalled £42.6 billion in 2024. Total UK exports to India amounted to £17.1 billion, while total UK imports from India amounted to £25.5 billion in 2024. India was Britain's 11th-largest trading partner last year.

What are the top Indian Exports to the UK? (2024)

1. Precious Stones & Jewelry : Valued at approximately $3.2 billion, this category includes diamonds, gold, and other precious metals, making it the largest export segment to the UK. 
2. Pharmaceuticals : Totaling around $2.5 billion, India's pharmaceutical exports encompass generic medicines and active pharmaceutical ingredients, reinforcing its role as a global pharmacy.
3. Machinery & Equipment : With exports worth $2.1 billion, this segment includes industrial machinery, electrical equipment, and related components. 
4. Textiles & Apparel : Accounting for $1.9 billion, India's textile exports to the UK feature cotton fabrics, garments, and traditional attire, catering to diverse consumer preferences. 
5. Automobiles & Parts : Valued at $1.7 billion, this category covers passenger vehicles, commercial vehicles, and automotive components.
6. Chemicals : Totaling $1.5 billion, chemical exports include organic and inorganic compounds used across various industries.
7. Petroleum Products : With exports worth $1.3 billion, India supplies refined petroleum products to meet the UK's energy demands.
8. Iron & Steel : Valued at $1.1 billion, this segment includes raw and finished metal products essential for construction and manufacturing.
9. Food & Beverages : Accounting for $900 million, exports encompass spices, tea, coffee, and processed food items, reflecting India's rich culinary heritage. 
10. Electronics : With exports worth $800 million, this category includes consumer electronics, components, and communication devices.

DETAILS OF THE INDIA-UK FTA

Tariff Reductions 

1. For UK exports to India: India will eliminate tariffs on 90% of UK goods, with 64% becoming tariff-free immediately and 85% within a decade. Notable reductions include Whisky and Gin: Tariffs reduced from 150% to 75%, aiming for 40% over ten years.
2. Automobiles: Tariffs on UK cars will drop from over 100% to 10%, subject to quotas and specifications.
3. Other Goods: Tariff cuts on cosmetics, medical devices, aerospace parts, and food items like salmon and biscuits.
4. For Indian Exports to the UK: 99% of Indian exports will enter the UK duty-free, benefiting sectors like textiles, jewelry, food, leather goods, and marine products .

Labor Mobility and Social Security

1. Indian professionals, including chefs, yoga instructors, and musicians, will have improved access to the UK market.
2. A social security agreement has also been signed which exempts Indian workers temporarily posted in the UK from dual National Insurance contributions for up to three years known as India–UK Double Contribution Convention.

What is the Double Contribution Convention?

The DCC is a bilateral social security agreement designed to prevent the duplication of social security contributions for employees temporarily transferred between India and the UK. The purpose is to avoid double social security contributions for employees temporarily posted between India and the UK. Without this, companies and employees could be forced to pay into both a.India’s Employees’ Provident Fund (EPF), and b. UK’s National Insurance (NI) system.

It benefits Indian workers sent to the UK for short-term assignments as well as the UK workers sent to India for temporary postings. For example an Indian employee posted to the UK for under 5 years and holding a CoC from India does not pay UK National Insurance. Similarly, A UK employee in India with a UK CoC does not contribute to India’s EPF.

Environmental Provisions

India has secured a conditional exemption from the UK's proposed Carbon Border Adjustment Mechanism (CBAM), which imposes higher taxes on imports from countries with less stringent climate policies. India reserves the right to retaliate if the CBAM is enacted .

Visa and Immigration Policies

The agreement includes modest changes to business mobility, allowing for temporary movement of professionals. However, it does not include broader visa concessions or pathways to permanent residency, reflecting domestic political sensitivities in the UK .

Economic Impacts of the FTA

The UK government projects a £4.8 billion annual boost to its GDP by 2040, with wages increasing by £2.2 billion annually. The Scotch Whisky Association anticipates a £1 billion increase in whisky exports to India due to the tariff reductions .

While the agreement has been concluded, it is expected to be formally signed in approximately three months and may take over a year to implement fully . This FTA marks a significant step in strengthening the economic ties between India and the UK, offering substantial benefits across various sectors and setting a precedent for future trade agreements.