India and the UK are natural trading partners – with the latter always aiming to become a bigger investor into India and increase trade with the fastest-growing economy in the world. This new Free Trade Agreement (FTA) allows that to happen, with tariff reductions, access to services, and opportunities for trade, investment, and professional mobility all part of the agreement.
However, we must appreciate the fact that any FTA is part trade, part investment. Trade is what increases in the short-to-medium term, as a result of lower tariffs and more efficient tax structures, ie, National Insurance changes. Tariffs are set to be reduced on 90% of British products exported to India, with 85% becoming tariff-free within a decade. But in the long term, we expect positive growth in investment and jobs in both the UK and India.
“The agreement should be a boost to trade between the two countries which is at a modest level as we approach the middle of 2025 – last year trade between India and the UK totalled £41 billion. The UK Government has said the deal will increase trade by an additional £25.5 billion a year by 2040. This will give UK SMEs and corporate businesses much better access to the fastest growing economy and an increasing middle-class population of 300 million plus.”
Anuj Chande, Partner, Head South Asia Business Group
What has been announced?
The key changes announced within the UK-India FTA are:
UK exports to India
Tariffs on 90% of British products exported to India will be reduced, with 85% becoming tariff-free within a decade. This includes significant tariff reductions on alcohol and cars.
Indian exports to the UK
Ninety nine percent of Indian goods will enter the UK duty-free, enhancing competitiveness for sectors like textiles, jewellery, and auto components.
Improved professional mobility
A three-year exemption from National Insurance contributions for Indian employees temporarily working in the UK, and a reciprocal provision for UK employees in India, allows for greater professional mobility for skilled workers between both countries.
Digital trade and technology partnerships
Many changes are aimed at supporting digital market access and cross-border business operations for IT services and fintech, including a focus on better legislation around electronic contracts to increase trade velocity.
What sectors are affected?
One sector that we’re confident will see an increase in investment is alcohol. India is already a big market for UK alcohol such as whisky and gin, however, India does boast its own alcohol industry and is always seeking raw materials to bring the quality of Indian-made alcohol up to a higher standard. Indian firms will want to shore up their access and supply and therefore invest into independent distilleries in the UK. Similarly, large international companies will be more likely to invest into plants in India – creating premium alcohol within India itself.
This is true for many goods-producing industries with the reduction in import tariffs on both component parts of products, as well as finished products. The UK Government is estimating a £38 billion of opportunity for UK firms that now have access to Indian procurement contracts.
“Mid-market firms haven't hugely invested into India yet. I’m hopeful this will create a better case for these mid-market companies to start accessing the Indian market and begin nearshoring, alongside just exporting to India and taking advantage of the trade benefits.”
Akshay Bhalla, Partner, Head of India Global
The services economies also stand to prosper from this FTA. Included in the deal is a three-year exemption from National Insurance contributions for Indian employees temporarily working in the UK, and a reciprocal provision for UK employees in India. Additionally, the FTA has also taken steps to ensure transparent visa processes and enable professionals to more easily transfer within organisations. These steps all aim at improving professional mobility, with businesses more inclined to take on skilled workers without the National Insurance contributions. With more UK professionals going to India, and more Indian professionals coming to the UK, the professional services industries have an opportunity to increase capacity – with access to skilled resources that were previously financially inaccessible.
The textile industry in India also stands to benefit – becoming more attractive to UK brands when compared to other countries that produce textiles for export, such as Vietnam. Even if clothing brands don’t switch their supply chain completely to Indian-made textiles, the increased options for sourcing and manufacturing adds much-needed choices into supply chains.
For more information on accessing the Indian market, get in touch with our experts.
