Britain and India are set to sign a landmark free trade agreement (FTA) during Indian Prime Minister Narendra Modi’s visit to the United Kingdom on Thursday, in a move that both sides say will significantly deepen economic ties and create new avenues for business and investment.
The pact, finalised in May after more than three years of intermittent negotiations, is expected to boost bilateral trade by an estimated £25.5 billion ($34bn) by 2040. It marks the most substantial trade deal secured by Britain since its exit from the European Union in 2020.
The FTA, which will come into effect following ratification by the UK parliament and India’s federal cabinet — likely within a year — aims to reduce tariffs across a range of goods, including textiles, automobiles, and whisky, while also improving market access for service sectors and business mobility.
“Our landmark trade deal with India is a major win for Britain. It will create thousands of British jobs across the UK, unlock new opportunities for businesses and drive growth,” British Prime Minister Keir Starmer said in a statement ahead of the signing.
Modi’s visit — his fourth to the UK since taking office in 2014 — will also see the signing of a broader strategic partnership encompassing cooperation in defence, climate change, and crime prevention.
Key tariff cuts
Among the headline provisions of the trade deal is a significant reduction in tariffs on Scotch whisky, which will drop from the current 150 per cent to 75 per cent immediately, with further reductions down to 40 per cent over the next ten years. Tariffs on British cars entering the Indian market will fall to 10 per cent from over 100 per cent, though access will initially be governed by a quota system that will be gradually liberalised.
In return, Indian manufacturers — particularly in the electric and hybrid vehicle sectors — will gain access to the British market under a similar quota-based arrangement, according to Indian commerce ministry officials.
The Indian government stated that 99 per cent of its exports to the UK, including textiles and other labour-intensive goods, would benefit from zero duties under the new framework. Meanwhile, the UK will receive tariff reductions across 90 per cent of its tariff lines.
Limited economic boost for UK
Despite its symbolic importance, the overall economic impact on the UK economy is expected to be modest. The British government projects an annual boost of £4.8bn to its GDP by 2040 — a small fraction of the country’s £2.6 trillion output recorded in 2024.
Nonetheless, UK officials maintain the agreement represents a key geopolitical and economic milestone, signalling the country’s post-Brexit ambitions to deepen ties with fast-growing economies beyond Europe.
The agreement will also allow for smoother short-term business travel, although it falls short of including provisions on visa liberalisation. However, both sides have agreed that workers posted temporarily will no longer be required to make social security contributions in both jurisdictions — a move expected to benefit companies with cross-border operations.
Access to procurement and services
British companies will gain access to India’s government procurement market, including opportunities in clean energy and infrastructure development. The deal also includes enhanced access to India’s insurance and financial services sectors, long viewed as heavily restricted to foreign players.
However, Indian negotiators failed to secure an exemption from Britain’s upcoming Carbon Border Adjustment Mechanism (CBAM), a policy that could impose taxes on imports from carbon-intensive industries starting in 2027.
Moreover, discussions on a separate bilateral investment treaty — held concurrently with the FTA talks — have not yet concluded and are expected to continue independently in the coming months.
Strategic alignment
Beyond trade, the two leaders are expected to announce a strategic framework to bolster cooperation in defence manufacturing, cyber security, renewable energy, and efforts to combat organised crime and terrorism.
The agreement is being viewed as a significant step towards enhancing the UK’s engagement with the Indo-Pacific region and strengthening its strategic partnership with one of the world’s fastest-growing economies.
