Stepping stone deal? UK pact could set template for India's future FTAs

The recently signed trade pact with the United Kingdom (UK) will act as a crucial “stepping stone” and a benchmark for the “high-quality” agreements India intends to pursue, Commerce and Industry Minister Piyush Goyal has said. Calling it a “win-win” for both nations, Goyal argued that the deal would also enhance India’s credibility in the global trade arena.

 

The India-UK Comprehensive Economic and Trade Agreement (CETA), signed on July 24 after three-and-a-half years of negotiations, signals that India is ready to face competition and shed its reputation as a high-tariff economy — a “tariff king”, as the United States (US) has often labelled it. The pact will cut India’s applied trade-weighted average tariff on goods imports from the UK from 15 per cent to 3 per cent.

 

Balancing red lines

 

Experts point out that the deal was possible only because both sides respected each other’s sensitivities and regulatory autonomy.

 

For the first time, India agreed to reduce tariffs on automobiles, albeit in a phased manner. The sector had been one of the most contentious points in negotiations. Indian negotiators eventually crafted a compromise: small cars remain protected, while larger vehicles face gradual tariff reductions, opening the segment to greater competition.

 

Alcoholic beverages, another sticking point, saw a similar approach. India agreed to phased duty cuts on whisky, brandy, rum, vodka, tequila and ciders.

 

Agriculture, however, remained largely off the table. Dairy products, cereals such as wheat, rice, maize and millets, and key edible oils and oilseeds were excluded from tariff cuts. On the UK side, sensitive items such as milled rice, sugar, pork, chicken and eggs also remained protected.

 

Mobility, a politically sensitive issue in Britain, was addressed by formalising existing visa rules for short-term and temporary business travel, offering certainty to businesses without introducing new concessions.

 

According to Agneshwar Sen, trade policy leader at EY India, the negotiation demonstrated India’s willingness to cross its “red lines” to deliver more sophisticated free trade agreements (FTAs) with developed economies. While offering market access to the UK, India has gained reciprocal market access while protecting domestic sensitivities, Sen said.

 

A more comprehensive pact

 

The agreement that India and the UK – the world’s fourth and six largest economies, respectively – have signed goes beyond goods and services. It is the most comprehensive trade pact India has ever signed, covering new-age issues such as sustainability, labour standards, digital trade, competition and consumer protection policy, telecommunications, subsidies, and anti-corruption measures.

 

The deal’s timing is significant. With global trade disrupted by geopolitical tensions and trade wars fuelled by US protectionism, bilateral agreements are increasingly shaping the world trade order. India is also trying to sign FTAs with the US, while accelerating and reviewing agreements with the European Union (EU), Latin American, West Asia, and the Asean nations.

 

“As India pursues talks with the US, EU and others, the UK FTA acts as a template for structuring future agreements that blend goods and services trade, professional mobility, and progressive chapters. Its innovative features set a new benchmark, enhancing India’s credibility and negotiating strength globally,” Sen said.

 

Implications for other partners

 

According to the Global Trade Research Initiative, a Delhi-based think-tank, this is the first time India has granted tariff concessions on automobiles under any FTA — a move likely to trigger similar demands from Japan, the EU, South Korea and the US.

 

However, a deal with the US may prove far more difficult. Washington has turned away from global trade frameworks, and tensions in the geopolitical arena complicate negotiations. Even so, India has signalled that it will continue to draw firm red lines, particularly on agriculture and automobile market access.

 

The EU talks, too, are expected to be especially challenging. Its member states are major exporters of cars, wines, spirits and agricultural products.

 

Unlike the UK, which has limited automobile exports to India, the EU represents a much larger auto-exporting bloc, said Jayant Dasgupta, India’s former ambassador to the World Trade Organisation (WTO). “Ultimately, it will depend on the level of ambition both sides show in trying to conclude the negotiations by the end of this year (the deadline the two have announced).”

 

Dasgupta also pointed out that India’s move to open its government procurement market to British companies could become a precedent for future talks, especially with the EU, which may seek a better deal. He added that other than large member nations, such as Germany, France, Italy, Spain, and the Netherlands, many countries in the EU have small markets and limited tender volumes.

 

Under the deal, while New Delhi has committed to giving the UK access to its large government procurement market, it has limited that access to central-level, non-sensitive entities. It has carved out exemptions for state and local governments, public sector undertakings, and its micro, small and medium enterprises (MSME) procurement policy.

 

Indian suppliers have gained guaranteed access to the UK’s procurement market, valued at around $122 billion, covering central government procurements and certain utilities. In return, India will open a market opportunity worth $114, creating significant opportunities for companies from both countries, said a senior government official who did not wish to be named.

 

A signal to domestic industry

 

The message from the Indian government is clear: India is prepared to open up traditionally closed sectors. Domestic companies, however, will need to be ready to face increased competition once the agreement is implemented. That is at least a year away, pending approval by the British Parliament.

 

Meanwhile, bilateral trade continues to grow. In the 2024-25 financial year (FY25), India’s exports to the UK rose 12.6 per cent year-on-year to $14.55 billion, while imports climbed 2.3 per cent to $8.61 billion, taking total trade to $23.15 billion.

 

The India-UK trade pact may still be at least a year away from full implementation, but its contours already signal a shift in New Delhi’s trade playbook. By carefully balancing protection with openness, India has shown it can negotiate complex, modern agreements with developed economies. For businesses at home, the message is unambiguous: prepare for competition, because the era of more sophisticated, high-quality FTAs has begun.   

Anatomy of a pact

 

• India-UK merchandise trade: About $23 billion 
• India-UK services trade: About $33 billion
• Trade negotiations started in January 2022, ended in May 2025
• India-UK Comprehensive Economic and Trade Agreement signed on July 24, 2025
• Agreement to come into effect after British Parliament’s approval. India’s Union Cabinet has already given its approval 

Gains for India 

• 100% duty-free market access for exports, covering 99% of UK tariff lines
• Zero-duty concessions across the board, with zero-duty tariff rate quota-based concessions on electric vehicles
• All zero-duty concessions will kick in the day the agreement comes into force
• India’s major exports – from labour-intensive sectors such as textiles, gems & jewellery, leather and footwear, organic chemical, artisanal products and ceramics to high-value goods like auto parts, machinery, pharma, and processed foods – will gain sizeably from zero-duty access
• Duty-free for nearly all Indian agri-exports, with a few limited exceptions like pork, chicken, eggs, rice, and sugar, will benefit Indian farmers and agri-entrepreneurs
• A double convention contribution signed between both countries will ensure that workers do not end up paying double contributions towards their social security. This will benefit over 75,000 Indian workers and over 900 employers. Industry estimates suggest current annual savings of more than $500 million 

Source: Department of Commerce