India-UK Trade Deal: How Significant is it Really?

The deal is sealed. Well, almost.

After two-and-a-half years, 14 rounds of talks under three different British Prime Ministers from two different parties, India and the United Kingdom on May 6, 2025 concluded negotiations on a landmark Free Trade Agreement (FTA), aiming to double their bilateral trade from about $60 billion today to $120 billion by 2030 amid geopolitical uncertainties.

But what exactly is this deal, and how will it affect retail investors?

In simple terms, the India-UK FTA will reduce the trade barriers between the two countries. This translates to lower import taxes (tariffs), easier movement of goods and services, and new investing opportunities across sectors from manufacturing and textiles to fintech and food. 

Here’s a factsheet: 

 So, let’s break it down and cover some interesting bits from the trade that retail investors must know, including the opportunities and the risks.

First, What is a Free Trade Agreement?

A Free Trade Agreement is basically a pact between countries to make trading with each other easier. In an FTA, countries agree to reduce barriers like tariffs (import duties), quotas, or other restrictions. The goal is to make it cheaper and simpler to buy and sell goods and services across borders. Think of it as an understanding that “you let my businesses sell in your country with fewer taxes, and I’ll do the same for yours.” 

This usually means a smoother flow of products, more choices for consumers, and possibly lower prices. Modern FTAs also set rules for services and investments, covering things like how banks operate, how professionals work abroad, and protecting intellectual property.

Why Does this FTA Matter for India?

For India, this FTA is part of a broader trend of integrating with the global economy. After years of cautious protectionism, India has been signing new trade pacts (for example, with the UAE and Australia recently) to boost exports and growth. 

The macroeconomic upside of such deals is clear: more access to foreign markets can mean higher export sales for Indian companies and thus higher earnings, investment, and jobs. 

Trade = Growth: If Indian businesses can sell more abroad, it contributes to India’s GDP growth. A surge in exports can also help narrow India’s overall trade deficit (the gap between exports and imports) if managed well. In fact, India currently runs a trade surplus with the UK (exporting more to Britain than it imports).

With the FTA, overall trade volume will rise; ideally, India wants its exports to keep outpacing imports. Consequently, in the last five years, the trade movement between the two countries has increased too. Take a look: 

Source: UK Gov Data

Additionally, India ranked as the UK’s 11th-largest trading partner in Q4FY24, accounting for 2.4 % of total UK trade; it was 13th in goods (1.9 %) and 8th in services (3.0 %). As an export market, India stood 12th overall (2.0 % of UK exports). 

Source: UK Govt Data

Lessons from Past FTAs

To better understand the potential impact of the India-UK FTA, let’s look at how other recent trade agreements have played out for India. India has signed a few major trade pacts in the past decade, and each offers clues to what works and what to watch out for:

India–UAE (2022 CEPA): Exports jumped 27% in the first year, especially gems and jewellery once duties were removed. When tariffs fall, Indian exporters often ramp up sales fast.

India–Australia (2022 ECTA): Exports to Australia rose about 14%, led by textiles, chemicals and farm goods. India’s services (like IT) also gained. Deals work best when each side needs what the other makes.

India–ASEAN (2010 FTA): Cheap palm oil and electronics flooded in, hurting small farmers and makers. That taught India to protect vulnerable areas—and to phase in cuts gradually.

Quick Takeaways

Calibrated Approach: Sensitive products (dairy, rice, electronics) stayed out, and tariff cuts on things like liquor stretch over the years.

Big Wins, Small Concessions: India secured near-zero duties on most exports while capping UK benefits in areas like government contracts and Scotch whisky.

Bottom Line: Past deals show that, with smart phasing and selective protection, an FTA can boost exports without shocking domestic industries. The India–UK pact borrows those lessons—so the upside for Indian exporters may outweigh the limited, gradual competition at home.

Sectors Set to Gain From the FTA

One key question for investors is: Who are the likely winners of this trade pact? Broadly, export-focused industries stand to benefit, as well as some that gain indirect advantages (like easier hiring abroad). Here are the sectors that look poised for growth:

1. Textiles & Apparel: Tariffs (4–12%) vanish, boosting fabrics, garments, and home linens.
2. Leather & Footwear: Up to 16% duty cut makes Indian shoes and accessories more competitive.
3. Gems & Jewellery: Duty-free entry slashes costs on luxury pieces, driving higher volumes.
4. Auto Components & Engineering: Zero tariffs on parts spur export orders and capacity expansion.
5. Pharma & Chemicals: Streamlined approvals speed market entry for generics and specialty chemicals.
6. Agri & Seafood: Lower duties on frozen prawns, teas, and processed foods open UK shelves to Indian producers.
7. IT & Professional Services: Easier UK visas and no extra payroll tax make sending Indian experts cheaper and simpler.
8. Financial Services & Startups: Clearer cross-border rules unlock fintech, ed-tech, and consulting growth.

Basically, any business that ships products or sends people to the UK stands to get a leg up. As these industries book more orders and cut costs, their earnings outlook should brighten—something investors may want to watch as the deal comes into force.

Sectors That May Face Challenges

1. Whisky & Spirits: Scotch and gin duties drop from 150% to 40% over ten years, so imported bottles get steadily cheaper. India’s big domestic distillers may need to up their game to keep drinkers loyal.
2. Luxury Cars and EVs: Tariffs on select UK petrol and diesel cars will fall to 10% under a quota, making Jaguars and Bentleys cheaper. However, domestic car manufacturers (especially those without a luxury lineup) won’t lose their primary market (since mass-market cars aren’t directly impacted – the UK isn’t exporting small cars to India). 
3. Niche Food & Seafood: Zero duties on lamb and salmon open a small but growing import market, challenging local producers on price and quality.
4. Cosmetics & Packaged Goods: Tariffs on perfumes, makeup, chocolates, and biscuits ease or disappear so British brands may undercut mid-to-premium Indian players on price or brand appeal.
5. Banking, Insurance & Consulting: UK firms gain equal treatment in India, so domestic banks and insurers will see more foreign rivals. Stronger competition may squeeze profits for firms that can’t innovate or cut costs.

But, each shift is phased in over several years, giving companies time to adapt. Investors should monitor how well local firms respond before deciding where to put their money. A balanced strategy—spreading investments across both export-benefitting and protected sectors, and tracking company updates on the FTA—can help manage risks.

What You Might Be Overlooking

1. The Carbon Border Tax Loophole

The UK’s proposed Carbon Border Adjustment Mechanism (CBAM) could levy fees on Indian exports like steel and chemicals if they don’t meet emissions standards. This might offset tariff gains, urging firms to adopt greener practices.

2. Corporate Lawsuits Against Governments

A hidden clause allows companies to sue India or the UK under the Investor-State Dispute Settlement (ISDS) mechanism if policy changes harm profits. While this protects foreign investors, critics argue it could hinder climate or public health reforms.

3. Currency Volatility

The Indian Rupee has weakened 28% against the British Pound since 2022. While this makes Indian exports cheaper, importers face higher costs if the trend continues.

Actionable Strategies for Investors

Bet on Export Champions: Focus on sectors with tariff advantages- textiles, marine products, and auto components.

Hedge Currency Risks: Use forward contracts or ETFs tracking the GBP/INR exchange rate.

Monitor Green Policies: Invest in companies adopting renewable energy to preempt CBAM impacts.

Diversify Luxury Holdings: Balance exposure between Indian liquor brands and UK importers.

The Bottom Line

Even as the India-UK FTA represents a “landmark” deal amid tariff wars and geopolitical uncertainties, the British won’t dominate India’s overall trade. 

In 2024, bilateral trade with the UK was about £42.6 billion (approx. ₹4.8 lakh crore), while India’s total goods and services trade for FY 2024–25 topped roughly ₹148.7 trillion. That puts the UK at around 3% of India’s trade, not trivial, but far from the largest.

To sum it up, the deal will turbocharge certain export-oriented sectors (textiles, leather, auto parts, IT services), but India’s trade remains far more driven by partners like China, the US, the UAE, and the EU. Investors should view the FTA as a powerful new lever, not the whole engine of India’s global commerce.