The United Kingdom (UK) concluded a Free Trade Agreement (FTA) with India on May 6, 2025, describing it as “the best deal that any country has ever agreed with India.” The agreement provides for a significant reduction in tariffs and limited opening of services. It also includes an exchange of access to their respective government procurement markets. This FTA is one of the few that the parties have entered. Its conclusion may be attributed, at least in part, to President Trump's tariff policies, which are upending the global trading system and prompting economies to strengthen their trading relationships through bilateral agreements. In addition to considering the UK-India agreement, this post reviews the status of India’s negotiations of an FTA with the European Union (EU).
The core of the UK-India FTA is a significant reduction in tariffs, with India agreeing to reduce tariffs on 90% of British products, including whisky and gin (tariffs will be halved from 150% to 75% and lowered to 40% after 10 years), medical devices, electrical machinery, aerospace, and foods such as chocolate and lamb. Within a decade, 85% of British products will become tariff-free in India. In addition, India will cut automotive tariffs from over 100% to 10%.
Britain is also cutting its own tariffs, which were relatively lower than India's duties. It removed a tariff on Indian textiles and reduced tariffs on other products such as shoes, toys, jewelry, and auto parts. Under the FTA, 99% of India’s exports to Britain will not be subject to any duties.
The FTA shows limited progress on services. Britian had sought easier access to the Indian market for legal and accountancy firms. However, when it refused to budge “on India’s biggest ask—more visas for Indian workers, particularly in IT,” the UK was unable to obtain the access it sought.
The agreement gives Britain greater access to India’s public procurement market, particularly with respect to goods due to the limited services covered by the FTA. The UK cited, as one of the benefits of the FTA, its “unprecedented access to India’s public procurement market, comprising approximately 40,000 tenders with a value of at least £38 billion a year.” India will cover the majority of its (non-sensitive) central government entities, as well as several federal state-owned enterprises at thresholds that are the lowest of any of its agreements. It excludes access to its state and local government entities.
An important element of the agreement is the exclusive treatment that UK companies will get under the ‘Make in India’ policy. Currently that policy provides preferential treatment for federal government procurement to businesses who manufacture or produce in India. Under the FTA, UK companies will be allowed to bid on tenders above the agreed threshold (Rs 200 crore or £17.5 million) and be treated as a Class II supplier if at least 20% of their product or service is from the UK. However, the 'Make in India' preference will continue to apply for approved Class I suppliers offering 50% or more of their goods or services from India.
This is the UK’s fourth new trade agreement since Brexit, following those with Australia and New Zealand and its accession to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. India has also entered few comprehensive trade agreements. One agreement is a Comprehensive Economic Partnership Agreement with the United Arab Emirates (UAE) in 2022. Under that agreement, India opened its government procurement for the first time to foreign firms, covering 34 central government entities while maintaining its domestic preferences.
After the UK and India finalize the legal text of the agreement, it will be made public and signed. Its implementation will follow approval by India’s Union Cabinet and the UK parliament (which could take up to a year).
The Economist pointed to the agreement as an indication of “how America’s disruption of global trade could accelerate bilateral negotiations around the world." That may also be an explanation for the recent announcement that the EU and India would complete their negotiations of a trade agreement by the end of this year. (They had relaunched negotiations in 2022 after a decade-long pause.) To meet the deadline, the EU is expected to recalibrate its negotiating objectives, including gaining access to India’s public procurement market. While the two sides have reached agreement on most of the text of a government procurement chapter, they have not been able to agree on the procurement to be covered and the application of the ‘Make in India’ policy. The eventual agreement would likely provide access to the procurement that India will open under the UK FTA and its UAE agreement.
Jean Heilman Grier
May 21, 2025
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