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India and the United Kingdom signed a landmark Free Trade Agreement (FTA) on May 6. The deal was jointly announced by Indian Prime Minister Narendra Modi and UK Prime Minister Keir Starmer. At a time when global trade is being strained by rising protectionism and retaliatory tariffs—many of which were initiated by the United States—bilateral FTAs like this one are being viewed as potential stabilizers for the world economy.

How do FTAs help?

India has historically been slow in entering FTAs, whether at regional or broader levels. Several prominent economists have pointed out that India’s economic growth has lagged behind its potential partly due to its limited participation in such agreements. In contrast, smaller economies like Vietnam have reaped significant benefits from actively engaging in FTAs.

In today’s globalized world, participation in FTAs is key to tapping into global supply chains. These agreements allow countries to access the lowest-cost inputs for production and then export the final products competitively. This integration enhances efficiency, reduces costs, and increases market reach.

The importance of supply chains is well articulated in the book Breaking the Mould: Reimagining India’s Economic Future by Raghuram Rajan and Rohit Lamba. They explain: “The supply chain for a product no longer needs to be concentrated in one location. It can be distributed globally, with each segment executed where it is cheapest. Much of a product’s value is created at the early stages, such as R&D and design. Manufacturing is carried out in cost-effective regions, and the final product is sold in the target market with accompanying high-value services like advertising, marketing, financing, and content provision.” (p. 32)

However, it remains to be seen whether the India–UK FTA will facilitate this kind of integrated supply chain advantage. Initial indications suggest the agreement may primarily focus on reducing import duties and opening up markets for finished goods.

Key benefits of the India–UK FTA

According to India’s Ministry of Commerce and Industry, the FTA provides that India will benefit from tariff elimination on approximately 99% of tariff lines, covering nearly 100% of trade value between the two nations. India has agreed to gradually reduce tariffs on 90% of tariff lines from the UK, while 99% of Indian exports are expected to gain zero-duty access in the UK.

The agreement aims to double bilateral trade by 2030. In 2024, trade between the two countries reached $21.34 billion. Currently, total bilateral trade is about $60 billion, with India enjoying a trade surplus. The UK is expected to save around $534 million in tariffs, based on 2022 prices, once the deal comes into effect (The Hindu, May 11).

Sectors expected to benefit

The UK stands to benefit from reduced tariffs on exports such as whisky, gin, and automobiles. India, meanwhile, will enjoy reduced duties on products like cosmetics, aerospace and medical devices, lamb, salmon, electrical machinery, chocolates, and biscuits.

Notably, the Indian apparel sector is expected to gain significantly. Mithileswar Thakur, Secretary General of the Apparel Export Promotion Council, stated that the agreement would likely boost exports exponentially and allow India duty-free access to the UK—similar to competitors like Bangladesh and Vietnam. Other sectors expected to benefit include automobiles, gems, and jewellery.

Agriculture and MSMEs raise concerns

Despite the optimism, there is anxiety among India’s agricultural and MSME sectors. The spice and tea industries, in particular, are expressing apprehension. According to Vijoo Krishan of the All India Kisan Sabha, Sri Lanka experienced a crash in the prices of spices and tea following its own FTA. He also referenced the ASEAN FTA’s impact on India’s rubber sector, where prices fell from ₹230/kg in 2011 to ₹170/kg in 2025. Krishan argued that FTAs often result in unequal outcomes for Indian farmers and MSMEs, creating an uneven playing field in the global market.