The possibility of FTA came up during discussions between Finance Minister Arun Jaitley and UK Chancellor of the Exchequer Philip Hammond at the 9th UK-India economic and financial dialogue wherein Britain pitched for increased trade engagement with India.
On its part, India said that a formal dialogue on a possible bilateral trade agreement can start only after the completion of Brexit, which is expected to take about two years.
"Obviously this can be formally discussed after the Brexit takes place but it is probably going to imply a far wider and a far higher engagement between the two countries.
"What shape it is going to take can only be formalised post-Brexit negotiation," Jaitley told reporters.
Hammond said the two nations have very significant trade and investment relationship and Britain is the largest G20 investor in India in the last 10 years, while India is the 3rd largest investor in the UK.
"We have continued to consolidate past success and to identify new areas where we can work together over the next couple of years, preparing for the point where Britain leaves the EU and is able to engage with Indian colleagues in a deep discussion about a future FTA between the UK and India," he said.
The UK is among India's major trading partners and in 2014-15, it ranked 18th in the list of India's top 25 trading partners.
As per the Department of Commerce data, two-way merchandise trade during 2014-15 was $14.33 billion, marking a decrease of 9.39 per cent as compared to 2013-14.