Why India-UK FTA marks a key policy shift in India’s trade policy

On July 24, 2025, Indian Prime Minister Narendra Modi and UK Prime Minister Keir Starmer signed the landmark India-UK Free Trade Agreement (FTA), aimed at strengthening the economic and strategic partnership between the two countries. This long-awaited agreement is expected to enhance bilateral trade, which reached $20.5 billion in 2024, by removing barriers, facilitating investment, improving supply chain resilience, and promoting inclusive development. This Comprehensive Economic and Trade Agreement (CETA), in fact, aims to increase bilateral trade six times, reaching $120 billion by the next five years.

The agreement, remarkable in its scope, encompasses 27 chapters covering trade in goods and services, digital trade, telecommunications, financial and professional services, labour mobility, environmental issues, and support for small and medium enterprises (SMEs). Most notably, this is India’s first FTA to include comprehensive chapters on social and developmental issues, such as labour rights, gender, anti-corruption, and development cooperation, setting a progressive benchmark for the country’s future trade negotiations. Additionally, the agreement introduces a reciprocal Double Contribution Convention, enabling portability of social security benefits for professionals and workers moving between the two countries.

With the much-anticipated legal text now out, there are three key features of the FTA that stand out.


First, India’s exports to the UK, which were previously subject to import duties ranging from 4% to 18%, stood at $12.9 billion in FY24. Under this FTA, nearly 99% of tariff lines will be eliminated, effectively liberalising almost the entire value of Indian exports to the UK. This move is expected to significantly enhance market access and boost the competitiveness of various Indian sectors, including textiles, marine products, leather, footwear, sports goods, cosmetics, toys, alcoholic beverages, gems and jewellery, medical devices, engineering goods, auto parts, and organic chemicals. Tariffs on whisky and gin will be halved from 150% to 75% and then drop down to 40% over a 10-year period. This reflects a broader policy shift in India’s trade policy away from using tariffs as tools for revenue generation towards a more rational, economically grounded tariff structure, which has been due for a long time. Most notably, as an unprecedented move, the FTA will mark the reduction of India’s steep import duties on automobiles from 110% to eventually only 10%. The India-UK FTA has given India the opportunity to move away from protectionist norms in the absence of time-bound sunset clauses that indefinitely shield domestic industries and impact their long-term competitiveness.

Second, the India-UK Free Trade Agreement marks a significant stride in India’s progressive alignment with global norms on public procurement. Even though India is not a signatory to the WTO’s plurilateral Agreement on Government Procurement (GPA), this bilateral inclusion is both ambitious and precedent-setting. Apart from a relatively limited commitment made under the India-UAE CEPA, this is the first time India is opening segments of its government procurement market with such breadth and precision. Under the FTA, UK suppliers will be accorded Class II supplier status, contingent upon a minimum of 20% domestic value addition originating in the UK. The agreement sets threshold values at SDR 450,000 for goods and services and SDR 5,000,000 for construction services for UK firms. The chapter on government procurement in the CETA has been carefully calibrated to preserve strategic autonomy. Coverage is limited to select central government ministries and central public sector enterprises (CPSEs), with an indicative list of 28 CPSEs explicitly safeguarded. Sensitive sectors, particularly those related to procurements for defence purposes, agricultural support programmes, and affirmative preference policies under the Public Procurement Policy for Micro and Small Enterprises (MSEs), 2012—remain outside the purview of the agreement. India has also committed to enhanced transparency by agreeing to publish procurement information on central portals, such as the Central Public Procurement Portal (CPPP) and Government e-Marketplace (GeM). These measures can raise quality and performance benchmarks in public procurement in India, fostering greater technological diffusion.

Also Read: India-UK CETA unlocks $23‑billion trade corridor, set to boost MSME exports

Third, for the first time in the history of any Indian trade agreement, a dedicated chapter on gender has been incorporated, signalling a progressive shift in India’s trade policy. Notably, the preamble of the agreement explicitly acknowledges the objective of enhancing women’s access to and ability to benefit from the opportunities arising from this FTA, with particular emphasis on women from rural areas, marginalised communities, and economically vulnerable backgrounds. This marks a significant step in recognising the critical role of women in economic development and underscores the imperative of promoting their meaningful participation in international trade. The gender chapter outlines a series of cooperation activities, including the collection and exchange of gender-disaggregated data to support evidence-based policymaking, efforts to improve market access for women-led enterprises, the development of trade missions targeted at women, the promotion of workplace flexibility, measures involving the advancement of financial literacy, enhancing access to trade financing for women, and identifying and sharing best practices across both countries. To ensure these commitments yield concrete outcomes, the agreement establishes a dedicated Trade and Gender Equality Working Group, tasked with overseeing cooperation initiatives and ensuring the sustained implementation of gender-related provisions. While no parallel mechanism exists under the SME chapter, its inclusion in the gender chapter signals a deep commitment to advancing opportunities for women workers, entrepreneurs, and business owners in both India and the UK. Notably, with 99% of women-owned enterprises in India classified as micro-enterprises, they stand to benefit significantly from the supportive measures outlined in the SME chapter as well.

While this FTA marks a significant leap in India’s trade policy, one critical omission that stands out is the lack of attention to the Carbon Border Adjustment Mechanism (CBAM). Omission of this could result in India’s exports of carbon-intensive goods, especially steel and aluminium, being subjected to additional tariffs, potentially nullifying the benefits gained through tariff concessions. Complementary technology agreements that support carbon-neutral manufacturing would significantly bolster India’s efforts to maintain industrial competitiveness and offset the impact of CBAM.

Overall, the India-UK FTA reflects a maturing trade strategy for India, one that values deeper integration into global value chains. Yet, the real test of this agreement lies in its implementation. With transparent and effective execution, this FTA has the potential of becoming the blueprint for India’s next generation of trade agreements.

Nisha Taneja is Professor, ICRIER and Nirlipta Rath is Research Assistant, ICRIER. Views are personal.