UK and India Forge Historic $34 Billion Trade Pact

Deal promises significant boost to bilateral commerce, slashes tariffs on key goods

The United Kingdom and India have inked a landmark free trade agreement expected to inject over $34 billion annually into their bilateral trade, a development hailed as “historic” by both nations’ leaders. The pact, finalized after three years of intensive negotiations, promises substantial benefits for consumers and businesses across both countries.

Tariff Reductions and Economic Impact

The agreement dramatically reduces duties on a wide array of products, including automobiles, alcohol, and textiles. This move is projected to increase annual bilateral trade by £25.5 billion by 2040, building upon the £40 billion in goods and services traded in 2024. The U.K. government estimates its exports to India will face a reduced average tariff of 3%, down from 15%.

Keir Starmer stated the deal offers “huge benefits to both of our countries,” anticipating increases in wages, improved living standards, and lower consumer prices. Narendra Modi described the agreement as “a blueprint for our shared prosperity,” emphasizing improved market access for Indian goods such as textiles, jewelry, and agricultural products in the U.K.

Key Provisions of the Trade Deal

Under the pact, 92% of U.K. goods exported to India will have tariffs eliminated or reduced. Conversely, up to 99% of Indian goods entering Britain will be tariff-exempt. The agreement also includes provisions for temporary Indian workers in the U.K., exempting them and their employers from social security contributions for three years.

Specific tariff cuts include those on U.K. scotch and gin, which will be halved to 75% from 150%, eventually dropping to 40% over the next decade. Tariffs on brandy and rum will also see significant reductions. For the automotive sector, duties will decrease to 10% within five years, under a quota system, from a current high of 110%.

This agreement is a significant step as it represents one of India’s initial trade deals with an advanced economy. The U.K. accounted for 3% of India’s total goods trade last year, primarily in machinery and equipment. Economists suggest the deal will boost Indian sectors like textiles and jewelry, thereby supporting employment and industrial growth.

India’s trade surplus with the U.K. has expanded in recent years. While improved market access could widen this gap initially, phased reductions in U.K. export barriers may help to rebalance it over time. However, the overall trade volume is expected to rise regardless of the surplus’s direction.

Strategic Geopolitical Implications

Analysts believe the U.K.-India trade agreement could bolster both nations’ standing in ongoing trade discussions with other global partners, including the United States. Alicia Garcia Herrero, chief economist at Natixis Bank, noted the deal provides substantial “leverage versus the U.S.”

This pact follows the U.K.’s trade agreement with the U.S. in May and precedes a potential meeting between Keir Starmer and U.S. President Donald Trump. The U.K.-India deal is projected to add £4.8 billion ($6.5 billion) annually to British economic output, positively impacting its £2.85 trillion GDP from 2024.

For Narendra Modi, this trade deal serves as a catalyst for India’s discussions with other developed economies, reinforcing his vision of India as a key global trading partner. Sameep Shastri, vice-president of the BRICS Chamber of Commerce and Industry, told CNBC, “The deal with UK will set a tone to all the Western powers that … we are ready to trade on our terms.” India is particularly keen to finalize a trade agreement with Washington before new U.S. tariffs take effect in August.

The U.K. Parliament and Indian Parliament must ratify the agreement, a process that could take several months. The pact’s successful ratification hinges on parliamentary approval in both countries.