The real deal: The Indian trade agreement

The US trade deal announced earlier this month did not live up to its billing. Last minute and light on detail, it leaves most businesses exporting to the US worse off than before April. It improved on the blanket tariffs announced by Trump on “Liberation Day” that month and brought relief for car manufacturers and some other industries. For most, however, it just made the best of a bad situation.  

Many would dispute President Trump’s description of it as a “major trade deal”. No one would describe it as “a ray of hope for the world”.   

The UK’s trade deal with India announced days earlier, by contrast, earned that accolade by bringing convincing commitments to radically reduce tariffs and other trade barriers between the two countries. The product of three years of negotiations, it is “the biggest and most economically significant bilateral trade deal the UK has done since leaving the EU”, according to the UK government.   

That is fair comment, even if in part it’s because there is little competition: Since leaving the EU at the end of January in 2020 there have been three other bilateral deals, beginning with Japan in October 2020, followed by Australia and, most recently, New Zealand, in 2022.  

The Indian deal is more significant than any of these. India was Britain’s eleventh biggest trading partner in 2024. Total trade between the countries last year was worth £42.6 billion, with exports to India valued at £17.1 billion and imports of £25.5bn. That’s greater than our trade with Japan (£30.6bn) and almost double the £23.0bn in trade between the UK and Australia, even three years after the UK agreed its free trade agreement with the country at the end of 2021.  

The deal will impact most of this trade, with reductions on 90% of tariff lines (the items that make up the country’s schedule of tariffs) covering 92% of existing goods imports from the UK once fully implemented, according to the published summary. India accounted for 2.4% of all UK trade in 2024, and the deal has scope to make a significant difference to this, and see it increase in years to come.  

All the same, for UK businesses trading with India, the devil will still be in the detail. 

We have a significant amount of detail already. While we haven’t seen the final legal text of the deal, a substantial agreement summary provides a good idea of what to expect.    

Some of this does limit the headline benefits. Reductions in tariffs will be phased over a number of years, for example. That’s not unusual in trade deals, particularly where the economic development of each country markedly differs. Nevertheless, 64% of tariff lines will be eligible for tariff-free imports into India, as soon as it is signed, albeit that this covers only £1.9 billion of UK exports to India (on 2022 figures). At the end of ten years, however, the agreement will cover 85% of tariff lines and two-thirds of existing Indian imports from the UK. 

The summary also details how different sectors will benefit: 

• UK advanced manufacturing exporters, such as aircraft parts and scientific and technical measuring instruments, will benefit immediately. Tariff-free access for UK agri-food, such as fresh and frozen salmon and cod, and lamb, also starts immediately. Imports of UK whiskey and gin see current tariffs halved from 150% to 75% on day one and gradually reduced to 40% from year 10 onwards  
• After ten years, tariff-free UK exports will include food and drink, such as chocolate, gingerbread and sweet biscuits, soft drinks and non-alcoholic beer. Auto parts, machinery and tools, and medical technology devices, including surgical, dental and veterinary instruments, will also be included 
• UK car manufacturers will benefit from a quota that reduces tariffs from over 100% to 10%. This will start with petrol vehicles but transition to electric vehicles (EVs) and hybrids. Indian access to the UK market for EVs and hybrids is also staged and under a quota

For many UK businesses, however, the elimination of tariffs on imports to the UK from India will be as important, if not more so. The deal eliminates duties for 99% of Indian goods.That will mean cheaper imports of telecoms equipment, machinery and clothing, for example, as well as iron, steel and refined oil.  

Not all businesses will welcome this. The Association of the British Pharmaceutical Industry (ABPI) is highly critical, for example. It has criticised the lack of protections for UK life science businesses’ intellectual property.  

For even those that benefit, however, its impact will depend partly on the details of the final deal. That includes not just the precise staging for tariff reductions being phased in, but other issues as well. The deal, for instance, promises simplification of the rules of origin for British products being imported into India. These are not always easy to manage. 

The new rules promise to make things easier and allow British exporters to gain tariff-free access to the market while still sourcing some ingredients and materials from outside the UK. The summary offers an example (whiskey distilled in Northern Ireland that can use barley or neutral grain spirit from the Republic of Ireland), but the details for this and other exports remain to be seen.  

At least initially, a new trading landscape inevitably brings new complexity. UK businesses must navigate the new system to capture the deal’s benefits. Phased tariff reductions, quota systems and new rules of origin could all complicate trade operations and planning. Markets, too, are subject to change. The competitive edge gained through the deal may be offset in the coming months and years by similar deals India is negotiating with other countries. As ever with international trade, things are always moving.   

As a starting point, businesses with exposure to Indian exports or imports will need to conduct an impact of assessment of the agreement and how it relates to their operations. Our experts are on hand to help, guiding you through what we know and don’t know about the deal, the opportunities and challenges it may present.