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The India-UK Free Trade Agreement (FTA) is set to offer a major opportunity for Indian businesses. With the agreement nearing operationalisation, the Indian government is preparing to use the one-year window to boost domestic manufacturing and export capacity. This trade pact is expected to benefit sectors like pharmaceuticals, processed food, textiles, and MSMEs, while also addressing strategic concerns like sustainability and fair market access.
India’s Small Share in a Big Market
Currently, Indian exporters have less than a 2% share in the UK’s $564 billion goods market. Despite being the world’s fourth-largest economy, India’s exports to the UK have remained low across several key categories. Sectors like food processing, garments, textiles, engineering goods, minerals, chemicals, and medical instruments are among those that will gain from the FTA.
Indian Commerce Secretary Sunil Barthwal noted that this agreement presents a chance to build the domestic industry and scale up production. The aim is to shift India from being a minor player to a key participant in the UK market. With the British Parliament expected to pass the trade deal soon, the government wants to maximise the gains by mobilising exporters across different sectors.
The Potential Across Sectors
According to government data, the UK imports goods worth over $564 billion annually. India’s share in this is around $11.4 billion, which means there is significant room for growth. The UK currently imports processed food, garments, plastics, chemicals, and other key goods from countries like Vietnam, Indonesia, Cambodia, and Bangladesh. These countries have enjoyed a trade advantage due to earlier FTAs with the UK.
India now aims to become more competitive by increasing its supply of the same goods. This includes items like rice, processed foods, apparel, and even generic pharmaceuticals. Indian hubs such as Surat, Tirupur, Ludhiana, Moradabad, and Bhadohi are expected to benefit directly due to increased orders and rising demand.
Pharmaceuticals and Public Procurement
One of the most strategic wins for India is the access to the UK’s $122 billion public procurement market. This includes health services and government purchases. India’s pharmaceutical exports to the UK are currently valued at around $0.6 billion, but with the FTA in place, this figure is expected to grow significantly.
The FTA will also open the door for Indian companies to bid for UK public tenders, including those from the British National Health Service (NHS). This offers a huge opportunity for Indian drug manufacturers, especially those producing affordable generics.
At the same time, UK suppliers will be allowed to compete for India’s $114 billion procurement market. However, the Indian government has made sure that its MSME preferential procurement policy remains intact. The "Make in India" policy protects domestic suppliers by giving them preference in public contracts.
According to the policy, only “Class-I local suppliers” — those using over 50% local content — can bid in most Indian tenders. This ensures that British suppliers can participate only when certain thresholds are met. For instance, in India, the threshold is ₹5.5 crore for goods and services; in the UK, it is ₹1.6 crore. This mutual access is balanced with national priorities.
Carbon Tax: A Major Win for India
A significant relief for Indian exporters is the absence of a carbon tax in the FTA. The United Kingdom has proposed a new carbon border adjustment mechanism (CBAM) from 2027, but this is not part of the current agreement. This ensures that Indian goods will not face any immediate carbon tax while entering the UK market.
India had expressed concern over the UK's CBAM plans and reserved its right to impose a retaliatory carbon tax if needed. The final FTA reflects this concern, with no such measure included. This is crucial for India’s exports, which may have otherwise been affected by high-carbon product tariffs.
Under CBAM, goods like cement, steel, aluminium, and fertilisers would face an added tax in the EU and the UK. This would have made Indian exports less competitive. Indian negotiators insisted that such policies should not be imposed without proper legal and trade discussions.
Shared Benefits and Reciprocity
The FTA follows the principle of reciprocity. Both countries have agreed to offer each other equal opportunity in public procurement and market access. This agreement is not limited to goods trade alone but also extends to services and investment rules.
This also aligns with India’s larger trade strategy. The FTA is part of the Comprehensive Economic Partnership Agreement (CEPA), which focuses on deeper integration beyond simple tariffs. It includes provisions for technology transfer, ease of doing business, and smoother regulatory procedures.
Preparing Indian Industry for Global Trade
To help Indian industries make the most of this deal, the government will launch awareness campaigns. These will educate exporters about new rules, quality standards, and market demands. The aim is to ensure that smaller manufacturers and MSMEs are ready to meet UK requirements and standards.
Institutions like Sheffield Metropolitan College and North West Regional College in the UK will be involved in vocational training for Indian professionals. This will help Indian businesses improve their services and make them more globally competitive.
A New Chapter in Trade Relations
The India-UK FTA marks a turning point in trade relations between the two countries. It offers Indian exporters access to one of the world’s largest and most affluent markets while protecting key domestic interests. From reducing tariffs to ensuring fair competition and avoiding carbon penalties, the agreement addresses multiple dimensions of modern trade.
As the Indian Parliament prepares to ratify the deal, the real challenge will lie in its implementation. However, with focused strategies, targeted support, and industry coordination, India is poised to turn this FTA into a success story. The next 12 months will be crucial in determining whether India can truly convert opportunity into sustainable growth.
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