Statsguru: India-UK FTA set to boost British investment prospects

India and the United Kingdom (UK) recently signed a free-trade agreement (FTA) following intense negotiations that resumed in February 2025, after their prime ministers met on the sidelines of the G20 Summit in Brazil in 2024.

 

Following its successful conclusion, Commerce and Industry Minister Piyush Goyal said the FTA would benefit Indian farmers, fishermen, workers, micro, small and medium enterprises (MSMEs), startups and innovators. “This FTA is not only about goods and services, but also about people, possibilities and prosperity,” he said.

 

The FTA has come at a time when the economic relations between India and the UK are growing, with their bilateral trade at roughly $60 billion, and projected to double by 2030. Thus, it is an opportune moment to look at the movement of trade, investment and people between the two countries.

 

The share of exports to the UK in India’s total exports grew marginally from 2.51 per cent in FY22 to 3.36 per cent in FY25. However, the share of imports from the UK in India’s total imports dropped from 1.25 per cent in FY23 to 1.2 per cent in FY25 (Chart 1).

 

 

India exported $14.55 billion worth of goods to the UK in FY25. According to the India-UK FTA, it will gain from tariff elimination on about 99 per cent of the tariff lines, covering almost 100 per cent of the trade value. This is expected to benefit India’s labour and technology-intensive manufacturing sectors and open up exporting opportunities.

 

India’s export of engineering goods to the UK rose from $2.68 billion in FY20 to $4.01 billion in FY25, even as readymade garment exports slipped below the pre-pandemic level (Chart 2).

 

 

The country has agreed to cut duties on imports from the UK for items like cosmetics, alcoholic beverages like Scotch whisky, medical devices, electrical machinery, cars, etc. India’s alcoholic beverage imports almost doubled to $314.67 million in FY24 compared with the FY20 numbers, while electrical machinery imports from the UK skyrocketed to $729.34 million in FY25 (Apr-Jan) (Chart 3).   

 

An official statement from the commerce ministry said the FTA would be beneficial for India’s service exports to the UK, which were valued at 14,714 million pounds in 2024. By comparison, service imports from the UK in 2024 stood at 10,104 million pounds. Professional and other business services constituted the bulk of service exports (Chart 4). 

 

India also signed a Double Contribution Convention agreement with the UK, under which Indian workers temporarily working in the UK, as well as their employers, would be exempted from paying social-security contributions in the UK for three years, leading to financial gains for Indian service providers.

 

However, the number of work visas issued by the UK to Indians (excluding dependents) halved from 73,778 in 2023 to 34,954 in 2024. Of the roughly 35,000 visas issued, 25,399 were worker visas and 4,756 temporary worker visas (Chart 5).

 

 

It is expected that the investor-friendly provisions in the FTA will make India even more attractive as an investment destination for UK investors. However, foreign direct investment (FDI) flows into India from the UK declined by 2.7 billion pounds in 2023. Meanwhile, its outgoing FDI to the UK increased to 2.9 billion pounds, the highest since 2018 (Chart 6).