Opinion Four ways in which India gains from an FTA with the UK

Nevertheless, this FTA aligns well with a rapidly growing Indian economy expanding at over 6 per cent per year in a world economy growing at half that speed. For Britain, having a trade agreement signed with the US and India simultaneously is a signal that it is re-engaging economically post-Brexit through agreements with the two largest democracies and their markets.

Significant in this deal is the geopolitical signalling. The FTA between the world’s fourth and sixth largest economies comes amidst increasing economic uncertainty caused by the Trump administration’s reciprocal tariff policies. This has revitalised previously lethargic discussions to conclude FTAs between like-minded countries. The knock-on effect of this is already visible. The EU and India will start the 11th round of FTA negotiations on May 12 to conclude an early interim agreement to mitigate trade risks to the former. An India-EU FTA, alongside an India-UK FTA, may reform global rule-making on international trade and perhaps even revive the WTO.

By itself, the India-UK FTA can yield four notable economic gains for India.

The first is deepening bilateral commercial ties. Lowering trade and regulatory barriers through the FTA will encourage specialisation and trade based on comparative advantage between India and the UK. India’s low labour costs and skills, for instance, give it a comparative advantage in labour-intensive industries and certain IT services. Already, total goods and services trade between India and the UK has grown rapidly, nearly doubling to $53.5 billion between 2018 and 2024. Assuming the bilateral FTA is implemented, this could rise by nearly 40 per cent — or another $32 billion — by 2040, according to projections by the UK’s Department for Business and Trade.

The second gain concerns global supply chain trade. India is a relatively small player in global supply chains, accounting for about 1.5 per cent of goods exports in 2023. But supply chain pessimism on India seems to be abating with Apple’s response to navigating potentially high US tariffs on China, its main global manufacturing base. In April, Apple announced plans to move the bulk of its iPhone assembly for US sales to India by the end of 2026, thereby doubling its current production in India and reducing its reliance on China. The India-UK FTA offers the prospect of India eventually supplying to the UK market and incentives for multinationals like Apple to invest in export-oriented Indian manufacturing capacity.

The third gain constitutes the benefits that will accrue to consumers and professionals on both sides. As tariffs fall under the bilateral FTA, consumer gains will arise from increased access to high-quality imports and lower prices. Indian consumers will enjoy reduced costs on goods from the UK such as whisky — of which India is already the world’s largest consumer — cosmetics, medical equipment, and advanced machinery, while British consumers can expect lower prices on Indian imports including clothing, footwear, and seafood. While the details are not yet available, the FTA is also expected to facilitate the movement of Indian professionals to the UK for employment without altering the UK’s existing points-based immigration rules. Worker mobility was understood to be a sticking point in negotiations, with India aiming for higher quotas for categories of professionals, including IT workers.

Fourthly, the FTA is a stepping stone to India’s membership of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). The CPTPP, a high-standard, mega FTA that reduces trade barriers for its members and which India declined to join, makes up a large share of world trade. Its 12 members, including Japan and the UK, represent 15 per cent of world trade and 15 per cent of global GDP. As Indian businesses gain experience and confidence with trading under the India-UK FTA, India can usefully study the economic benefits and costs of CPTPP accession. It provides access to multiple markets in one go, will benefit India from the China+1 movement, and boost business for MSMEs, which account for 40 per cent of India’s exports. This would continue the progressive FTA-led engagement strategy of the Indian government, which has seen similar agreements take effect since 2021 with Australia, the UAE, the European Free Trade Association, and Mauritius.

By itself, the India-UK FTA is an enabling condition for India’s advancement and influence in the world economy. Actual geopolitical and economic gains will only accrue to countries that use FTAs as a springboard to undertake comprehensive economic reforms and tackle supply-side challenges. It is critical to activate India’s underperforming chambers of commerce and overcrowded education system to rigorously prepare Indian youth for the new world that awaits them.

The writer is Professorial Fellow for Trade and Economics at Gateway House: Indian Council on Global Relations, Mumbai