Opinion Free Trade Agreement with UK opens a path to deals with US, EU
With multilateralism in an indefinite coma, for India, well-negotiated FTAs can play a role similar to that played by global markets and the WTO in the upscaling of the Chinese economy.
PM Narendra Modi and UK PM Keir Starmer described the FTA as a historic milestone in bilateral Comprehensive Strategic Partnership. (Credit: x/@narendramodi) 
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India and the UK signed a Free Trade Agreement (FTA) on May 6, marking the culmination of over three years of negotiations that began in January 2022. By the standards of negotiating timelines, the FTA has been rather swift. The one with the EU, in particular, has been languishing for almost two decades, although it seems to have picked up momentum of late. The other vital trade pact on the government’s anvil, with the US, was not in serious contention until earlier this year.
Timing, after all, is everything. The UK formally exited the EU in December 2020 and has been seeking new trade relationships to compensate for the loss of EU market access. Since then, it has struck deals with Japan, Singapore, Vietnam and even entered the Comprehensive and Progressive Agreement for Trans-Pacific Partnership or CPTPP — a mega trade bloc of 12 countries. In many ways, the FTA with India is its most significant trade deal since leaving the EU because India is one of the world’s fastest-growing major economies. It will facilitate India’s middle class improved access to UK’s high-value exports — automobiles, Scotch whiskey, legal and financial services. India offers a young and digitally savvy consumer base with opportunities for British technology, education, and professional services. The attention towards diversification away from China, coupled with India’s strong economic trajectory, presents the UK with a rare opportunity.
India recognises the inevitability of engaging more with the outside world to achieve its ambition of a “viksit” India by 2047. This goal could remain unrealised without enhanced global engagement and trade. That is why the FTA with the UK marks only the beginning of a long and hard negotiating period. For now, India will gain better (duty-free or reduced duty) access for its exports — mineral fuels, machinery, precious stones, pharmaceuticals, apparel, iron and steel, and chemicals, to name a few. Significantly, the FTA also includes provisions for easing mobility for Indian professionals and students, facilitating greater access to opportunities in the UK, while addressing their ageing-related constraints.
For a trade economist, the FTA is a manifestation of the Ricardian school of thought based on comparative advantage. For India, this is also the first major FTA outside Asia, and the gains from the deal are likely to be quite significant.
Voluntary trade — unlike the forced colonial exploitative model of the past that deindustrialised India by dismantling traditional industries, especially textiles, and converting them into raw material suppliers for British factories — is exactly that, voluntary. Nations engage with each other via trade because it is beneficial to do so. The India-UK FTA is beneficial to both countries. It aims to enhance trade, investment, economic growth, job creation, and innovation in both nations. Safeguards are also in place to prevent immediate disruptions. The tariff reductions on goods such as whiskey, automobiles, and agricultural products have been phased and subjected to a quota in case there is a flood of imports from the UK. The UK, in turn, will eliminate tariffs on Indian textiles. This, in turn, is anticipated to boost manufacturing in India.
The total bilateral trade between India and the UK touched approximately £42 billion by mid-2024 with India maintaining a trade surplus of about £8 billion. The FTA aims to double trade by 2030. The UK ranks as the sixth-largest investor in India, with cumulative investments exceeding £38 billion over the past three years in sectors like financial services and manufacturing was the second largest source of FDI in the UK in 2023.
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While the India–UK FTA lays the groundwork for a more integrated economic partnership, conversation and cooperation will be essential to reduce divergence in standards and to fully realise the agreement’s potential benefits. The growing importance of e-commerce, digital trade and climate change necessitates an innovative approach to trade rules — this includes setting standards not only for finished products but also for processes underlying their production. For now, India has been cautious about committing to binding labour and environmental standards within the FTA, preferring non-binding “best endeavour” clauses. The FTA also encourages the development of Mutual Recognition Agreements (MRAs), particularly in professional services, to facilitate the recognition of qualifications and licenses between the two countries. It also endorses initiatives like the UK-India Education and Research Initiative (UKIERI) and promotes mutual recognition of academic qualifications to enhance student mobility and employment opportunities.
By signing the FTA with the UK, India has finally conveyed its conviction about the utility of trade agreements. Its periodic assertions to integrate into regional and global value chains seemed at odds with the stance it took on such agreements. Hopefully, FTAs with the EU and the US will follow in due course. These agreements will, however, not deliver unless accompanied by domestic reform to remove structural deficiencies. These are well known impediments such as the lack of scale, labour market rigidities, logistics pains and harassment on transactional matters. But the UK FTA — others to follow — can become the preferred instruments for domestic reform, thus easing the political resistance and setting the stage for an economic upgrade. With multilateralism in an indefinite coma, for India, well-negotiated FTAs can can play a role similar to that played by global markets and the WTO in the upscaling of the Chinese economy.
Kathuria is dean, School of Humanities and Social Sciences and professor of Economics at the Shiv Nadar University. Views are personal
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