The historic trade deal signed between India and the UK finally came into effect on 15th July. The announcement was made with much fanfare in New Delhi, in the august presence of senior officials of the Department of Commerce, diplomats from the UK High Commission and a large number of Indian industry members. The day also witnessed the shipment of export consignments worth US$140 million from different locations across India to the UK, availing the preferential duty under the FTA.
This is truly a people-centric agreement, as it benefits businesses and consumers alike. For Indian industry, it fulfils a long-standing demand for an FTA with a large traditional market. The UK is one of India’s major export destinations for labour-intensive goods, an important market for services exports — particularly business services, which benefit a large pool of young technology professionals — and one of the leading sources of Foreign Direct Investment.
Zero-Duty Access for Labour-Intensive Goods
Normally, in any trade deal, we tend to highlight the export opportunities unlocked for labour-intensive sectors, including textiles, leather, footwear, gems and jewellery, and marine products. The FTA with the UK is no different, as it throws open unprecedented market access for Indian goods, with zero-duty access on 99% of tariff lines covering nearly 100% of the trade value. In addition, the UK has offered ambitious services commitments across a wide range of sectors, covering IT/ITeS, financial services, professional services, business consulting, education, telecom, architecture and engineering.
UK’s Vast FTA Network: Advantages and Challenges
Over the years, the UK has built a vast network of regional trade agreements (RTAs). It is currently party to 39 RTAs spanning 73 economies (counting the EU as one). Of these, 33 agreements were “rolled over” from existing EU arrangements, while five have been negotiated post-Brexit — with Australia, New Zealand, Japan, EFTA and the CPTPP. Some important trade deals, such as with the GCC countries, are also in the pipeline.
This extensive RTA network offers advantages but simultaneously poses challenges. In terms of advantage, India gains an opportunity to integrate itself into the UK’s wider FTA network, and Indian companies can establish their presence in the UK to access the broader Western market. On the challenges front, despite securing zero-duty access, India will have to compete with several other countries that enjoy similar preferences in the UK market. Indian exporters will therefore have to invest in building their competitiveness.
Looking at Opportunities Beyond Exports
The UK as an Innovation Hub
More than enhanced export opportunities alone, Indian industry must leverage this important FTA through various other windows, as the Hon’ble Prime Minister Shri Narendra Modi urged in his message — to build a forward-looking partnership driven by trade, technology and innovation. The UK’s vibrant innovation ecosystem has enabled the creation of many start-ups, made possible through strong financial support for business R&D and several tax incentives for the commercialisation of IPR. As India too has developed a strong start-up ecosystem, this trade agreement offers an instrument to facilitate deeper collaboration in this field.
UK’s Strength in Technology-Intensive Services
Further, the UK’s strength in science and innovation has driven rapid growth in technology-intensive services exports, which cover computer services, R&D services, IP licensing, architecture, engineering, scientific and other technical services. Net exports of these services more than doubled between 2016 and 2024, from £23.1 billion to nearly £50 billion.
The services sector is the cornerstone of the UK economy, accounting for 81% of total economic output and 83% of employment. This strength is also reflected in the pattern of UK trade: services exports, which accounted for 58% of total exports, exceed merchandise exports in value terms. India is on a similar trajectory, with services exports fast catching up with goods. This indicates that, even more than manufacturing, the UK offers a huge opportunity for Indian service exporters across sectors.
Strong and Vibrant Financial Sector
For the UK, financial services are a key driver of productivity growth, exports and employment. In 2024, UK net financial services exports exceeded, in value, those of the rest of the G7 combined. India, on the other hand, is a fast-growing market for financial services, owing to soaring credit demand across sectors including consumer finance, insurance, housing, small businesses and start-ups.
Moreover, India has an ambitious plan to foster greater financial inclusion by 2030 through enhanced credit accessibility and insurance penetration, which is not possible without a significant infusion of FDI. For instance, the per capita insurance premium in India is a meagre US$92 against the global average of US$853, leaving huge scope for the UK’s insurance companies to invest, with FDI up to 100% permitted under the automatic route.
Opportunity to Integrate into GVCs
The UK is tightly integrated into global value chains. Its machinery, aerospace, automobile and pharmaceutical sectors trade intensively with the EU and the rest of the world in both intermediate and final goods. In aerospace, most traded products comprise capital goods such as turbojet engines and intermediate goods such as aircraft parts (wings and fuselages). Similarly, the UK’s automobile industry is deeply embedded in regional value chains through trade in intermediates (engines and knock-down kits). With the FTA now in force, Indian engineering and automobile sectors have an opportunity to integrate into this high-value regional production network.
In the pharmaceutical sector, India’s strength lies in drug formulations and biologicals (finished medicines), while for intermediates it remains highly dependent on China. The UK, by contrast, trades heavily in intermediates: about one-third of pharmaceutical products imported into the UK from the EU are intermediates, while these account for about 40% of the UK’s pharmaceutical exports to the EU. In the current scenario, therefore, India’s best option is to push exports of its finished products under the FTA.
Way Forward and Conclusion
Industry waited long for this trade agreement, and the Indian negotiators have delivered a well-crafted deal with one of India’s largest traditional markets. The real challenge now lies in its effective utilisation. Labour-intensive sectors such as textiles and leather will find their way, as they are familiar with the UK market. The true test lies in utilising this FTA for the newer areas, for this is a comprehensive trade deal covering many subjects — and its full promise will be realised only through wider integration with the UK economy.
The author is Chairman of Hi-Tech Gears Limited and Past Chairman of NABCB, a constituent of Quality Council of India.
