India UK trade deal: The steep US tariffs on India have impacted major export categories, particularly labour-intensive exports, and have triggered investment uncertainty in India. This comes as competitors such as Vietnam, Bangladesh, and even China currently face lower tariffs. Although a deal is being negotiated with the US, the implementation of the UK deal, expected by July next year, not only strengthens India’s trade diversification strategy for goods exports but also improves linkages with one of the world’s most developed services sector economies. The UK market access for India While counteracting the hit from US tariffs may take several years of export diversification efforts and absorption of Indian products by trade partners across the globe, with India standing to lose nearly $40 billion worth of US-bound exports annually, the UK deal could somewhat cushion India’s labour-intensive sectors. After the deal comes into force, Indian products will be potentially at par with competing countries, especially in the textile sector. The UK annually imports $27 billion worth of textile products, and India’s total exports to the UK in 2024 stood at $13.5 billion. However, all labour-intensive sectors may not see the much-needed relief. With a 4 per cent duty relaxation under the trade deal, the gems and jewellery sector—a key labour-intensive sector for India—may not benefit much from the UK deal compared with the losses it suffers in the US market. India’s gems and jewellery sector exports to the US in FY25 stood at $9 billion and are facing steep tariffs, while India’s exports to the UK under this category are worth $941 million. The deal may offer limited upside as the UK’s total imports are only $3 billion in the gems and jewellery category. With total imports of over $70 billion, the UK is one of the largest markets for electronics exports, and duty elimination across product categories ranging from 0 to 18 per cent opens a significant market for Indian products. As India’s exports in the category are growing rapidly, aided by Apple's presence, India’s share in the UK market could register sharp growth over the years. However, competitors in the UK market include China, which far outperforms India in both the engineering and electronics categories. The UK is also a large market for engineering goods, being largely a services sector economy. With tariffs as high as 10 per cent on iron and steel products, Indian products could see exports rise in this category. The UK steel market size was approximately $32.13 billion in 2024 and is projected to reach $42.74 billion by 2033, as per the Ministry of Commerce and Industry. The UK’s plans to impose a Carbon Border Adjustment Mechanism (CBAM) could restrict Indian exports despite the tariff reduction, but this could also offer an incentive for the Indian industry to decarbonise in line with broader global requirements. While large industries may manage this swiftly, Indian MSMEs, without government support, may not be able to. Services sector boost A key beneficiary of the India-UK deal could be the services sector. With the H-1B visa fee hike and US barriers being erected even in the services sector, the UK deal could help India partly offset the possible hit from changing US trade policy. The UK is one of the largest and most developed service sector economies in the world. The services sector is the largest contributor to India’s economy, accounting for 55 per cent of Gross Value Added (GVA), while the UK’s services sector accounts for 81 per cent. The Ministry of Commerce has said that the UK has taken full commitments in Computer and Related Services, giving certainty to Indian businesses planning to invest in the UK. The government said that the agreement aligns with India’s goal of becoming a global hub for high-value services, as greater UK investment and cooperation will boost India’s digital economy and skilling initiatives. The India-UK trade agreement could shift British companies’ approach to India—from a low-cost back-office destination to a strategic partner for research and development, analytics, cybersecurity, and emerging technologies, the ministry said, adding that it will also support the growth of Global Capability Centres (GCCs) that serve UK-based businesses or deliver global services from India. India already hosts over 1,700 GCCs employing more than 1.9 million people, driving digital transformation for leading multinational companies, as per the Ministry of Commerce.
