India-UK FTA a good deal, but for whom?

In the midst of US tariff tensions, India and the UK signed a free trade agreement (FTA) on May 6, 2025, following 15 rounds of negotiations spanning over three years.

The deal is expected to ease regulations and strengthen economic ties between the world’s fifth and sixth-largest economies. “The FTA ensures comprehensive market access for goods across all sectors, covering all of India’s export interests,” the Indian government states in a release.

According to the trade agreement, 90% of UK tariff lines (or product categories) will face reduced tariffs in India, which will lead to lower prices for UK products in India, including whisky, gin, automotive items, medical devices, cosmetics, aerospace components, lamb, salmon, electrical machinery, soft drinks, chocolate, and biscuits.

The pact also specifies that 99% of Indian tariff lines, covering nearly 100% of trade value, will now enjoy zero duty, opening huge export opportunities for India in sectors such as textiles, marine products, leather, footwear, sports goods, toys, gems & jewellery, engineering goods, auto parts, engines, and organic chemicals.

Over the years, the trade between India and the UK has grown. India expects the bilateral trade to double from $60 billion (both merchandise and services) currently to $120 billion by 2030, thanks to this FTA. It is important to note that the UK imports more from India than it exports, resulting in a net trade surplus for India; to maintain that, India must ensure its exports remain competitive, advise experts. This FTA would “substantially improve the competitiveness of Indian goods in the UK compared to other countries,” says the government.

India ranked as the UK’s 11th largest trading partner in the four quarters of 2024, contributing 2.4% to the UK’s total trade. During this period, the top five categories of imported goods from India by the UK were refined oil, clothing, telecom & sound equipment, medicinal & pharmaceutical products, and iron & steel. As the bilateral trade is expected to grow sharply in the coming days, these sectors are poised to benefit, creating greater opportunities for small businesses operating within them to capitalise. Here’s a look at some of the major merchandise sectors which are set to gain from the India-UK FTA:

Textiles
The $170 billion textile and apparel industry in India, which previously faced an import duty of 10-12% from the UK before the FTA, struggled to compete with countries such as Bangladesh that benefit from duty-free access. Now, it is breathing a sigh of relief. The FTA—which stipulates zero duty now—has created a more level playing field that is expected to boost textile exports from India to the UK.

Kumar Duraiswamy, Joint Secretary, Tiruppur Exporters’ Association (TEA), says that the entire textile value chain, including the Tiruppur cluster, will be highly benefited. “Traditional textile items, such as sarees and salwars, will definitely see a hike [in demand]. Earlier, due to the duty issues, buyers procured a limited number of items from India. Now, with zero duty, they are quite excited and want to increase their business with India on multiple levels,” says an optimistic Duraiswamy.

The Tiruppur cluster contributes 54% to India’s total knitwear exports and is renowned as the knitwear capital of India. Duraiswamy expects the FTA will lead to an increase in demand for the Never Out of Stock (NOOS) export category, which typically refers to essentials, including undergarments and intimate wear.

“Since the FTA has come in, a new strategy will be in place by exporters. We expect strong order books, as many core items will be ordered regularly. There will be a ramp-up of production in NOOS items where we anticipate orders to be issued for the next year. So, the factory will be in a very comfortable position to book raw materials and keep them ready in warehouses, which will be shipped out as and when the buyers require it,” he highlights.

India currently exports nearly $1.2 billion of ready-made garments to the UK, which accounts for 6% of its total exports. According to CareEdge, following the trade deal, the share will double to 12%. Notably, 80% of India’s textile sector is comprised of MSMEs.

Gems & Jewellery
Sentiments are also high in the gem and jewellery sector, where India’s exports to the UK stood at $941 million in CY24. Industry body The Gem & Jewellery Export Promotion Council (GJEPC) expects duty relaxation due to the pact will enhance exports. “India’s total gem and jewellery exports are expected to rise to $2.5 billion over the next two years. As a result, bilateral trade in this sector is expected to double to an impressive $7 billion,” says Kirit Bhansali, Chairman, GJEPC.

India’s gem and jewellery sector comprises 85-90% of MSMEs. The increase in trade will enable these small businesses to expand further. “We are committed to ensuring that the benefits percolate to every level of the value chain—from artisans and small manufacturers to large exporters and international retailers,” says Kirit Bhansali.

In 2024, India exported gold jewellery and polished diamonds worth $270 million and $170 million, respectively, to the UK, according to GJEPC.

Chemicals
Another leading foreign exchange earner for India is the chemical sector, which is largely dominated by MSMEs (over 60%). Notably, the UK is currently India’s 13th largest export destination for chemicals. According to Chemexcil, India’s exports to the UK account for a 1.9% share of India’s total chemical exports. In FY25, India’s chemicals exports to the UK reached $570.32 million, registering a growth of 25.55% over FY24. Satish Wagh, Chairman of the industry body Chemexcil, describes the India-UK FTA as a “golden opportunity” for Indian chemical exporters. He notes that the FTA is expected to boost chemical exports significantly by reducing existing tariffs from 0-8% to zero on all chemical products, excluding those classified as notified items.

Under the FTA, India will now receive preferential tariffs on key raw material imports from the UK, such as specialised agrochemical molecules, iodine, aniline and specialty chemicals, according to Wagh, adding he sees great potential for Indian chemical exports over the next 2-3 years as he expects chemical exports to the UK to nearly double over the next 2-3 years, reaching around $1 billion by 2029-30 amid this backdrop.

However, the future path may not be smooth for small chemical manufacturers, says Rajata Mehra, CEO of Rajat Chemicals. Citing a GTRI report that highlights that the FTA may not lead to significant additional trade gains for India since many of its exports already benefit from low or zero tariffs in the UK, he says, “My understanding is that in the backdrop of already zero/near-zero/low UK tariffs, the upside for the Indian industry is limited,” he says.

Engineering
India’s engineering exports to the UK show its importance in the overall dynamics. In FY25, India’s total engineering exports to the UK increased 11.7% to $4.01 billion from $3.59 billion in FY24. The UK is India’s sixth-largest engineering export market. Export items include steel and steel products, aluminium and its derivatives, electrical machinery, construction and industrial machinery, automotive components, and medical and scientific instruments.

“With the elimination of tariffs on nearly 99% of exports, our engineering goods will enjoy enhanced competitiveness in the UK market. Leveraging this FTA, engineering exports from India to the UK are projected to nearly double over the next five years, reaching an estimated $7.55 billion by the fiscal year 2029-30,” says Pankaj Chadha, Chairman, Engineering Export Promotion Council of India (EEPC). Notably, over 60% of EEPC’s members belong to the MSME category.

He states that this agreement presents substantial growth opportunities for both MSMEs and large enterprises, aimed at deeper market access and increased value addition.

The FTA is expected to unlock market opportunities and trade potential for India across various sectors. In addition to positively impacting labour-intensive sectors, it is also expected to enhance the services trade, including IT/ITeS, financial services, professional services, other business services, and educational services, thereby creating more opportunities and jobs.

India’s MSME (micro, small and medium enterprise) sector comprises more than 63 million enterprises and employs over 250 million people. The sector accounts for more than 40% of India’s total exports. With India-UK trade poised to double in the next few years, these small businesses, spread across sectors, are positioned to benefit significantly.