India-UK FTA exposes weak links of bilateral trade: By the estimate of Britain’s trade ministry, the India-UK free trade agreement will increase bilateral commerce by about £25 billion by 2040. Around £15 billion of that is expected to come from British exports and £10 billion from Indian exports. For India, spread over fifteen years, the additional exports amount to perhaps $3-4 billion a year. Total Indian exports of goods and services are already close to $863 billion. The agreement will therefore contribute little towards the ambition of raising exports to $2 trillion. Its larger value lies elsewhere.
The political signal has some worth. The multilateral trading system is under strain and Washington has become less predictable. Britain needs markets beyond its traditional transatlantic relationship. India needs dependable trading partners. A bilateral agreement supplies both with an alternative.
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India-UK FTA offers limited export gains
There are tangible gains for India. The arrangement on double social security contributions should save Indian professionals posted temporarily in Britain about $450 million a year. Textiles and clothing, leather, gems and jewellery, and marine products will benefit from lower tariffs.
The tariff bargain itself is asymmetric. Indian applied tariffs average 14-15% and have much further to fall. British tariffs are already low, and more than half of Indian merchandise enters Britain almost duty free.
That matters because modern trade agreements extend well beyond tariffs. Services, investment, digital trade, intellectual property, government procurement and finance now occupy much of the negotiating space. Services already account for more than two-thirds of the roughly $70 billion bilateral relationship.
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Procurement, digital concessions deserve scrutiny
British suppliers will gain treatment comparable to India’s second category of domestic suppliers. Contracts starting at about ₹5.5 crore will therefore expose Indian micro, small and medium enterprises to British competition. The reciprocal opening is less valuable because British procurement from suppliers outside Britain and the European Union is only about $10 billion a year.
The provisions on medicines are more consequential than their wording suggests. The agreement describes voluntary licensing as the preferred route for widening access. India’s power to issue compulsory licences survives. It has been used only once. The provision nevertheless raises the political cost of using it again.
The digital chapter also pushes India towards making government data publicly available. That cuts against an advantage contemplated for domestic digital firms in the draft e-commerce policy of February 2019.
Labour, gender and environmental commitments are outside dispute settlement, but they come with institutional mechanisms through which Britain can raise questions about implementation of Indian law. There is also a multilateral consequence. India has resisted linking trade with non-trade issues at the WTO. Accepting such linkages in bilateral agreements weakens that position.
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UK carbon border tax cuts into market access
One omission is harder to explain. Britain’s carbon border adjustment mechanism takes effect from January 2027. Steel, iron, fertiliser and ceramics account for roughly 6.5-7% of Indian exports to Britain, with close to $775 million of trade exposed. Carbon charges could take back part of the market access created by lower tariffs.
India has paid for poorly designed trade rules before. Agricultural subsidy calculations at the WTO continue to use reference prices from the late 1980s without adjustment for inflation. Such provisions can impose costs long after the negotiation is forgotten.
The larger problem, however, lies inside India.
District-level evidence on household incomes during the five years to 2019 suggests that greater trade exposure produced weak income gains. The benefits were concentrated in capital-intensive sectors. Labour moved out of labour-intensive production, while profits rose and small producers at the bottom of the distribution lost income. Trade liberalisation can therefore redistribute gains before aggregate benefits become visible.
India-UK trade needs domestic investment
The reasons are familiar. Many small manufacturers use old technology and struggle to meet European quality standards. Finance for cleaner technology remains scarce even as carbon barriers make such investment more urgent. Research spending is weak. Competitive pressure often pushes firms towards informal subcontracting instead of investment in technology.
Logistics add another handicap. Only about 2.7% of Indian exports are directed to Britain. Shipping frequency is low, unit costs are high and political relations in South Asia restrict regional cargo consolidation.
The India-UK FTA makes more sense if it forces attention onto these constraints. Access to European capital for small Indian manufacturers could matter more than another tariff concession. Technology transfer has a strong case where cleaner production reduces emissions across borders. Better digital access to overseas market information can reduce dependence on intermediaries. A domestic carbon price would also prepare exporters for measures already being imposed in major markets.
India’s larger trade question lies in Asia
More than half of India’s trade takes place within Asia. Production networks there run through China and regional trade arrangements from which India remains largely absent. Agreements with Britain and other western economies cannot substitute for an Asian trade strategy.
Investment matters as much as market access. The wager behind the India-UK FTA is that predictable rules will attract investment, higher investment will raise efficiency and Indian firms will enter more global value chains. That proposition is reasonable, but the agreement cannot deliver the outcome by itself.
The reforms of 1991 worked because domestic firms and institutions eventually responded to greater competition. The India-UK FTA can open another market. Whether Indian producers gain from it will depend on productivity, technology and capital at home.
This article is written with inputs from a discussion hosted by EGROW Foundation.