In a landmark agreement reached on May 6, 2025, the United Kingdom and India have finalized a significant free trade deal aimed at bolstering economic ties between the two nations. This agreement, described as the UK’s largest post-Brexit trade deal, is set to facilitate easier exports of key British products such as whisky and cars to India while reducing tariffs on Indian clothing and footwear exports.
After three years of negotiations, the British government announced that the deal would not alter immigration policies, particularly concerning Indian students studying in the UK. Prime Minister Sir Keir Starmer emphasized the deal's potential to enhance the UK economy, stating that it would "deliver for British people and business." Last year, trade between the UK and India totaled £42.6 billion, and the government projects that this deal could increase trade by an additional £25.5 billion annually by 2040.
Indian Prime Minister Narendra Modi hailed the agreement as an "historic milestone" that is both "ambitious and mutually beneficial." He noted that the pact aims to catalyze trade, investment, growth, job creation, and innovation in both economies. Once the deal is implemented—expected to take up to a year—UK consumers can look forward to reduced tariffs on a variety of goods imported from India, including clothing, footwear, cars, foodstuffs, and jewelry.
Specifically, tariffs on gin and whisky, which had been a contentious point during negotiations, will be halved to 75%, with further reductions scheduled for future years. Additionally, the previously prohibitive 100% tariffs on more expensive UK-made cars exported to India will drop to 10%, albeit under a quota that limits the total number of vehicles.
The deal also encompasses provisions for the services sector and procurement, allowing British firms to compete for more contracts in India. Furthermore, it includes a three-year exemption from social security payments for certain Indian and British workers temporarily transferred between the two countries. This exemption, termed an "unprecedented achievement" by the Indian government, means that employees will only pay social security contributions in their home country rather than in both nations.
Despite the optimism surrounding the trade deal, some opposition voices expressed concerns. Kemi Badenoch, leader of the opposition, criticized the agreement as "two-tier taxes from two-tier Keir," referring to Labour’s recent increase in employer National Insurance contributions. Shadow Trade Secretary Andrew Griffith remarked, "Every time Labour negotiates, Britain loses." Liberal Democrat deputy leader Daisy Cooper voiced apprehension regarding the tax obligations of Indian workers in the UK, calling for parliamentary scrutiny of the deal.
The UK government has reassured that the National Insurance exemption will not impact NHS funding, as Indian workers in the UK will still be subject to the immigration health surcharge. With India currently ranked as the fifth largest economy globally and projected to become the third-largest within a few years, the UK is keen to solidify its position as a high-priority trading partner. Modi's government aims to increase exports by $1 trillion by 2030, making the UK an attractive ally.
This trade agreement represents a significant win for free trade at a time when global trade dynamics are shifting. The Trump administration's tariff policies have sparked fears of trade wars, making the UK-India deal a beacon of hope amidst rising protectionism. Rain Newton-Smith, chief executive of the Confederation of British Industry (CBI), welcomed the deal as providing a "beacon of hope amidst the spectre of protectionism," highlighting the myriad opportunities available for UK businesses in the Indian market.
Allie Renison, from communications firm SEC Newgate and a former government trade adviser, described the deal as potentially "transformational" due to India’s size, growth rate, and the relatively high barriers currently in place for UK access to its market. The agreement signifies a turning point in the long history of economic relations between the two nations, addressing decades of missed opportunities.
As the UK strives to redefine its global trading relationships post-Brexit, this deal with India is positioned as a cornerstone of its new economic strategy. Trade Secretary Jonathan Reynolds stated that this agreement, along with others in the pipeline, aims to make the UK the "most connected market in the world." This ambitious vision includes not only a focus on India but also prospective agreements with the United States and countries in the Gulf region.
In summary, the UK-India trade deal marks a significant step forward in enhancing bilateral trade relations, with both nations poised to reap the economic benefits. As the agreement moves toward implementation, businesses and consumers alike are eager to see how these changes will reshape the trading landscape between the two countries.
