Contours of India UK FTA set to boost economic opportunities

After over three years of negotiations that began in January 2022, the India-UK Free Trade Agreement (FTA) was recently concluded and formally announced on May 6, 2025. Yet, there is a road ahead to traverse for cementing the partnership.

The legal text of the agreement is being finalized, and once completed and legally verified, arrangements will be made for the signing. After signature, it will be subject to fulfilment of both countries' governmental requirements, including parliamentary procedure in the UK, before it enters into force.

While the FTA is finalized, negotiations for a new Bilateral Investment Treaty (BIT) are still ongoing. This is an important outstanding issue with concerns remaining regarding dispute resolution and investment protection.

The UK’s Carbon Border Adjustment Mechanism (CBAM), set to launch in January 2027, is another point of discussion, as it could impact Indian exports, though its full implications for the FTA are still being addressed.

What are key benefits and provisions? Increased Trade: The FTA aims to significantly boost bilateral trade in goods and services, with projections ranging from an increase of £25.5 billion to doubling the current trade from $60 billion to $120 billion by 2030.

Tariff Reductions:

For UK exports to India: India will cut tariffs on 90% of British product lines, with 85% becoming tariff-free within a decade. This includes significant cuts on items like Scotch whisky (from 150% to 75% initially, then to 40% over 10 years), automobiles (from over 100% to 10%), medical devices, electrical machinery, aerospace components and various food and drink products.

For Indian exports to the UK: The UK will eliminate tariffs on 99% of Indian goods including clothing, footwear, processed foods and jewellery.

Economic Growth: The agreement is projected to increase UK GDP by £4.8 billion and UK wages by £2.2 billion annually in the long run.

Mobility Commitments: The FTA includes provisions for easing mobility for Indian professionals and students, facilitating greater access to UK opportunities. This includes commitments in various service sectors, offering benefits for Indian professionals.

Comprehensive Scope: Beyond goods and services, the FTA covers digital trade, government procurement, intellectual property, labour, gender, anti-corruption, and environmental standards.

Strategic Importance: The FTA is considered a significant agreement for both countries, signalling a deepening of bilateral relations and aiming to serve as a benchmark for future global trade policy.

In essence, the India-UK FTA is a landmark deal that is expected to create substantial economic opportunities and strengthen the strategic partnership between the two nations, though some details related to investment and environmental standards are still being ironed out.

Background: Historically, India and the UK have had constantly evolving relationship spanning three centuries, initially characterized by trade and commerce. The relationship was marked by periods of colonialism, post-colonial tension and increasingly collaborative ties. While the British Raj (1757-1947) shaped the initial decades, post-1947 saw a shift towards a more complex, nuanced relationship, with the rise of India's economic and political influence. Today, the relationship is characterized by strong bilateral ties with a focus on trade, investment and cultural exchange.

India-UK FTA a potential game-changer for garments

G. CHANDRASHEKHAR

The India UK Free Trade agreement (FTA) signed in May 2025 can potentially become a game-changer for India and benefit the Indian textiles and garments sector through enhanced exports and foreign exchange earnings.

The India UK Free Trade agreement (FTA) signed in May 2025 can potentially become a game-changer for India and benefit the Indian textiles and garments sector through enhanced exports and foreign exchange earnings.

India currently exports nearly $ 1.2 Billion of RMG to the UK, out of its total RMG exports of $ 15-16 Billion.

Interestingly, Bangladesh, Turkey, Cambodia and Italy enjoy duty-free access to the UK market. Vietnam and Pakistan benefit from lower to zero tariff.

For India’s RMG sector, the India UK FTA will create a level playing field vis-à-vis key competing nations for accessing the nearly $ 20 Billion UK RMG market. Currently, China holds the largest market share in the UK’s RMG imports. India now has a clear 12% duty advantage over China.

India is expected to double its market share from 6% in 2024 to 12% in the UK’s RMG imports, translating into an incremental annual export opportunity of approximately $ 1.1 - 1.2 billion in the near to medium term.

Globally, major RMG markets include the European Union, the United States, UK, Canada, Japan and South Korea. Together they accounted for nearly 44% of global imports in 2024.

In 2022, the EU and USA together accounted for nearly 40% of global RMG imports. However, their combined share declined in 2023 and 2024 due to high levels of inflation and higher interest rates in these economies that in turn impacted consumer discretionary spending.

In keeping with the trends in the developed world, UK’s imports too declined from $ 24 Billion in 2022 to $ 20 Billion in 2024.

At the same time, following the Vietnam-UK FTA effective from January 01, 2021, Vietnam’s share in UK’s RMG imports increased from 2.22% in 2020 to 5.42% in 2024.

Interestingly, despite a 12% applicable tariff, China holds a dominant 26% share of RMG imports into the UK. This performance has been supported by high labour productivity and competitiveness in man-made fibres. Equally interesting is the fact that while China lost market share over the past four years, India gained market share during the same period despite a similar 12% tariff.

China is expected to continue to lose market share in the UK’s RMG market due to its declining competitiveness caused by rising labour costs and the ‘China Plus One’ sourcing strategy adopted by global apparel brands and retailers.

Additionally, socio-political uncertainties in Bangladesh may also encourage apparel brands and retailers with a significant presence in the country to diversify their sourcing. This move can benefit India among others.

In such a scenario, India is expected to double its market share from 6% in 2024 to 12% in the UK’s RMG imports, translating into an incremental annual export opportunity of around $ 1.1-1.2 Billion in the near to medium term.

Recovery in overall RMG demand from the UK, with moderating inflation and interest rates, along with India’s increased competitiveness post-duty removal and continued favourable policy regimes in India, such as the PM Mega Integrated Textile Region and Apparel (PM MITRA) Park and the Production Linked Incentive (PLI) scheme, is expected to aid the sector in grabbing these additional export opportunities.

In a recent report, CareEdge Ratings made the following key observations on India-UK FTA. Despite the applicability of a 12% tariff, India had gradually gained market share in the UK market over the past four years, while China had lost some ground during the same period. With the signing of the FTA with the UK, India now has a clear 12% duty advantage over China, the largest RMG exporter to the UK, with exports of $5 Billion in 2024. Socio-political uncertainties in Bangladesh, which exported RMG of around $4 billion to the UK in 2024, may also lead apparel brands and retailers with a significant presence in Bangladesh to diversify their sourcing, amongst others, to India.

“Recovery in demand for RMG in the UK market, gain in market share from competing nations backed by increased competitiveness of Indian RMG exporters post duty removal and favourable policy regime in India are expected to create an incremental annual export opportunity of around $ 1.1-1.2 billion in the near to medium term. India’s major dependency on cotton-based textiles as against the relatively higher share of man-made fibres in the global RMG market may restrict the overall opportunities from the India-UK FTA to an extent”.

Vietnam has demonstrated significant gains in its share of the UK’s RMG market following the FTA with the UK. India’s overall RMG exports, which grew by 10% to $16 billion in 2024-25, have sufficient headroom to increase RMG exports by another 10-15%, given the available capacities in the sector, the report added.

“The India-UK FTA holds significant potential to boost investments across the textile value chain, generate employment, particularly for women in the labour-intensive RMG sector and increase foreign exchange earnings,” the report observed.