On May 6, 2025, India and the United Kingdom finalized a long-awaited trade deal after three years of intensive negotiations. The agreement, hailed as a landmark by both governments, is expected to significantly boost economic ties between the two nations, which are the fifth and sixth largest economies in the world.
The British government announced that the deal is projected to increase bilateral trade by £25.5 billion (approximately $34 billion) annually by 2040. Additionally, it is anticipated to add £4.8 billion to the UK’s GDP and boost wages by £2.2 billion each year in the long run. These figures underscore the economic potential that both countries see in this partnership.
Indian Trade Minister Piyush Goyal expressed optimism about the agreement, stating, "This brings us closer to our goal of becoming a global economic powerhouse. It protects our core interests while opening doors to India’s greater participation in global value chains." The deal will reduce tariffs on 90% of British products sold in India, with 85% of these becoming fully tariff-free within a decade.
One of the most significant changes involves the whisky and gin markets. Tariffs on these popular British exports will be halved from 150% to 75% immediately, with a further reduction to 40% expected by the tenth year of the agreement. This is a major victory for the UK’s alcohol industry, particularly given that India is the world’s largest whisky market by volume.
Automotive tariffs will also see a dramatic decrease, dropping from over 100% to 10% under a quota system. Other British goods benefiting from reduced tariffs include cosmetics, medical devices, aerospace parts, lamb, salmon, chocolate, and biscuits. The Indian government has indicated that 99% of its exports to the UK will face no import duties under this agreement.
Moreover, the deal introduces a “Double Contribution Convention,” which exempts Indian workers in the UK from national insurance payments for up to three years, and vice versa for British workers in India. This provision, described as a "huge win" for India, has sparked some controversy in the UK, particularly among opposition leaders who argue it creates a two-tier tax system.
Prime Minister Keir Starmer emphasized the importance of the deal, stating it would help strengthen the UK’s economy and create jobs. He noted, "Strengthening our alliances and reducing trade barriers with economies around the world is part of our Plan for Change to deliver a stronger and more secure economy here at home." Starmer's comments reflect the government’s broader strategy to enhance trade relationships post-Brexit.
India’s Prime Minister Narendra Modi echoed this sentiment, calling the agreement a historic milestone that is both ambitious and mutually beneficial. In a post on social media platform X, Modi stated, "These landmark agreements will further deepen our Comprehensive Strategic Partnership, and catalyse trade, investment, growth, job creation, and innovation in both our economies." Modi also extended an invitation to Starmer to visit India to celebrate the agreement.
Despite the positive outlook, there are concerns regarding the deal’s implications for environmental regulations. India sought an exemption from the UK’s forthcoming carbon tax, a climate policy tool set to be implemented in 2027. However, officials did not provide details on this aspect during their announcements.
The trade agreement comes at a time when many countries are reevaluating their trade strategies in light of tariffs imposed by the Trump administration in the United States. The UK and India are not alone in their efforts to strengthen trade ties; many nations are exploring new agreements to mitigate the economic impacts of such tariffs.
Trade between the UK and India was valued at £42.6 billion in 2024, and the new agreement is expected to enhance this figure significantly. The UK government has positioned this deal as the largest and most economically significant bilateral trade agreement it has signed since leaving the European Union in 2020.
Business leaders have welcomed the agreement, highlighting its potential to open doors in one of the world’s fastest-growing markets. Rain Newton-Smith, chief executive of the Confederation of British Industry (CBI), described the deal as a "beacon of hope amidst the spectre of protectionism" following the wave of tariffs from the US. She noted that UK businesses see myriad opportunities in the Indian market.
The deal also addresses concerns about job creation and economic growth. By facilitating easier access for UK firms to the Indian market, it is expected to generate new jobs and stimulate investment. UK Business Secretary Jonathan Reynolds noted that the benefits for UK businesses and consumers are "massive," as they will gain from reduced tariffs on a wide range of goods.
As the agreement moves towards ratification, both leaders are expected to meet in the coming months to finalize the deal. The UK government has indicated that it will continue to negotiate additional provisions related to labor and environmental standards, as well as a separate bilateral investment treaty.
In summary, the UK-India trade deal represents a significant step forward in economic collaboration between the two nations. With its potential to boost trade, create jobs, and enhance consumer choice, it is seen as a pivotal moment for both economies. As the world navigates a complex trade landscape, this agreement may serve as a model for future partnerships.
