Forging stronger ties: The ground-breaking Free Trade Agreement between the UK and India and its economic impact

published on 12 May 2025 | reading time approx. 3 minutes

The United Kingdom and India signed a landmark Free Trade Agreement (FTA) on 6 May 2025, marking an important milestone in their bilateral relationship. This agreement is expected to have a profound economic impact for both countries. Below you will ﬁnd a detailed summary of the most important aspects.

Background and context

The UK and India have a long-standing relationship, underpinned by historical ties and a large Indian diaspora in the UK. This relationship has developed into a solid economic partnership, with bilateral trade worth £43bn in 2024. Negotiations on the FTA, which began in January 2022, faced several challenges, including political changes in the UK and global economic uncertainties. However, both countries were determined to reach an agreement that would beneﬁt their economies and strengthen their strategic partnership.

The most important provisions of the free trade agreement

Tariff reductions

The agreement provides for signiﬁcant tariff reductions on a wide range of goods. India will gradually reduce import tariffs on UK goods, making most goods completely tariff-free within a decade. The UK will beneﬁt from reduced tariffs on products such as whisky, high-value manufactured parts and foodstuffs such as lamb, salmon, chocolate and biscuits. Of particular note is the halving of tariffs on whisky and gin from 150% to 75%, before being reduced to 40% by the tenth year of the agreement, while tariffs on motor vehicles are set to fall from over 100% to 10% as part of volume quotas.

India will also beneﬁt from the tariff cuts as UK tariffs are reduced on goods such as clothing and footwear, food including frozen prawns, jewellery and gems and some cars.

Non-monetary relief

The agreement also aims to dismantle non-monetary trade barriers. It contains provisions to simplify customs procedures and promote investment ﬂows between the two countries. In the services sector, particularly in IT and ﬁnancial services, there will be increased cooperation and a reduction in barriers, which will beneﬁt both economies.

Intellectual property rights are to be better protected, and enforcement guaranteed for companies operating in both markets. Digital trade is also a priority, with measures to promote e-commerce and data protection.

Immigration regulations

Contrary to India's efforts to facilitate immigration for skilled workers and students, the trade agreement does not include any changes to the UK's immigration policy. However, the agreement does provide for a three-year social security exemption for Indian employees working in the UK on a short- term visa. This is intended to make it easier for people with certain qualiﬁcations to work temporarily in the UK for companies with a presence in both countries.

Economic impact

The free trade agreement is expected to increase bilateral trade by 25.5 billion pounds per year in the long term. This growth is expected to be fuelled by the complementary nature of the two economies and India's rapid economic growth. UK GDP is expected to increase by £4.8bn, while wage growth is expected to increase by £2.2bn per year.

Strategic importance

The free trade agreement reﬂects the commitment of both countries to capitalise on their economic strengths and promote mutual growth. The agreement is seen as a strategic step for the UK post- Brexit as it demonstrates its ability to conclude signiﬁcant trade agreements on its own.

The agreement positions both countries as major players in the global trade landscape, especially in the context of changing economic power dynamics. It also sets a precedent for India's approach to trade negotiations with other major economies, including the US and the EU.

It also shows that, under the inﬂuence of the current US tariff policy, states are vigorously and successfully strengthening alternative trade routes and thus striving for increased independence.