Ashraf Engineer
August 30, 2025
EPISODE TRANSCRIPT
Hello and welcome to All Indians Matter. I am Ashraf Engineer.
Not too long ago, India and the United Kingdom signed a free trade agreement, or FTA, aiming to boost annual bilateral trade by $34 billion. In 2024-25, India’s exports to the UK stood at $14.5 billion, while imports were at $8.6 billion. UK Prime Minister Keir Starmer also announced investments and export deals worth $8 billion between India and the UK.
Under the FTA, 99% of Indian exports would benefit from zero duty in the UK market.
India and the UK also completed negotiations for the Double Contribution Convention Agreement, or social security pact, which would help avoid double contribution to social security funds by Indian professionals working for a limited period in Britain.
An FTA is essentially a trade agreement by which the two countries eliminate or reduce significantly duties on most of the goods and services they trade. An FTA can be a catalyst for growth for a developing economy by opening new markets, attracting investment and improving competitiveness.
Let’s take a closer look at not just the FTA with the UK but also how FTAs can benefit developing countries, and what to watch out for.
SIGNATURE TUNE
The major proposals of the India-UK FTA include slashing of import duty on British whiskey and gin from 150% to 75% before reducing it to 40% within 10 years. Automotive tariffs will be reduced from more than 100% to 10% under a quota. Other goods with reduced duties include cosmetics, aerospace, lamb, medical devices, salmon, electrical machinery, soft drinks, chocolate and biscuits.
The FTA is expected to open export opportunities for Indian labour-intensive sectors such as textiles, marine products, leather, footwear, sports goods, toys, gems and jewellery, engineering goods, automobile parts and engines, and organic chemicals.
When it comes to services, the FTA eases mobility for professionals, including contractual service suppliers, business visitors, investors, corporate transferees, partners and dependent children of such transferees with a right to work, and independent professionals like yoga instructors, musicians and chefs.
So, what exactly is an FTA?
An FTA is a deal between two or more countries to reduce or remove customs duties or taxes on most goods and services traded between them. FTAs can also reduce other barriers to make it easier to do business, export services and encourage investments between the partner countries. Globally, more than 350 FTAs are active, and most countries have signed at least one.
There are several benefits:
- Bigger markets for exports through zero or reduced customs duties
- Developing economies get a level playing field against competitors from other countries that already have FTAs with the partner
- Products from FTA countries get better access and treatment in each other’s markets compared to non-member nations
- Such FTAs encourage foreign companies to invest in developing economies
- FTAs enable easy imports of raw materials and machinery at lower cost
- Through lower tariffs, FTAs reduce prices and improve the quality of consumer goods. This leads to higher purchasing power and a wider choice of goods and services
FTAs can accelerate GDP growth and boost competitiveness. It has been observed consistently that countries that have lowered trade barriers experience faster growth and poverty reduction. FTAs make a country more attractive for foreign investment because the deal signals a commitment to open markets and consistent trade policies. The foreign direct investment that results can boost manufacturing and create jobs.
By integrating into the global value chain, the developing economy can access foreign technology, leading to productivity improvements and skill development.
As a result of all this, studies say free trade lowers poverty through wider economic growth.
There are, of course, caveats.
Developing countries must be mindful of potential downsides. For instance, there is a need to protect sensitive industries, strengthen domestic businesses, invest in skill development and monitor trade policies. Small farmers and cottage industries, for instance, are vulnerable to foreign competition and they need cover. The benefits of any FTA are best realised when accompanied by strong domestic policies — such as infrastructure development, education and support for small businesses — to ensure inclusive and sustainable gains.
Otherwise, benefits may concentrate in just a few regions or among large firms, increasing inequality, and compliance costs can be tough on small businesses.
If at all imports grow faster than exports, then the trade deficit would widen. However, that is unlikely to be the case with the India-UK FTA.
Let’s talk about the economic projections related to the FTA. The UK estimates the FTA will increase its GDP by $6.4 billion annually and double Indian exports to the UK. As of now, more than 1,000 Indian firms operate in the UK, employing more than 1 lakh people and investing $20 billion. The UK, in turn, is the sixth-largest foreign investor in India having invested $36 billion.
We’ve talked a lot about what India will gain from the FTA but what about the UK?
Alcohol and luxury goods firms like beverage major Diageo and luxury carmakers such as Aston Martin and Jaguar Land Rover, which is owned by Tata Motors, will gain improved market access in India under a lower tariff system. UK companies can now also bid on Indian federal government tenders worth over Rs 200 crore in non-sensitive sectors. This opens access to Rs 4.09 lakh crore in annual tenders.
This is by no means India’s first FTA. It already has FTAs with Mauritius, the UAE, Australia, the European Free Trade Association which comprises Iceland, Liechtenstein, Norway and Switzerland, and now the UK. There are FTAs also with Sri Lanka, Bhutan, Thailand, Singapore, Malaysia, South Korea, Japan and the ASEAN bloc.
There are many other countries that India is negotiating trade deals with.
After all, this is an era of great economic uncertainty and protectionism. So, governments across the world are relying on specialised trade strategies to grow and secure a competitive advantage in global markets. The favoured tool for this is FTAs.
There are benefits to both, the private and public sectors.
Private companies that have insight into the comparative strengths and weaknesses of FTAs can make better decisions on where to invest and reduce the risk of operations. Thus, they optimise their global value chains and market access.
Governments, meanwhile, can better use trade as a driver of economic prosperity. And for non-trade objectives such as diplomatic cooperation and climate-change mitigation.
However, let’s not think of FTAs as panaceas. The results can vary widely and signing FTAs does not guarantee greater economic competitiveness. There are so-called blind spots for governments and multinational companies. So, governments need to analyse how effective their trade agreements are compared to those of other countries and make adjustments.
From 1990 to 2017, developing countries increased their share of global exports from 16% to 30%. In this same period, the global poverty rate fell from 36% to 9%. Overall, trade does generate prosperity and has helped to lift 1 billion people out of poverty in recent decades.
Trade has many benefits. It leads to faster growth. Countries that are part of global value chains can specialise in making a single component, such as computer chips, much like Taiwan has done. It can increase access to mission-critical technologies to reduce greenhouse gas emissions, solar panels, wind turbines and drought-resistant seeds.
FTAs are very much a product of the globalisation philosophy, but despite their benefits globalisation is under attack. Many blame it for the loss of manufacturing jobs in advanced economies and environmental degradation. Add geopolitical tensions to the mix and many advanced economies are raising barriers to trade. For example, in 2022, many countries reacted to disruptions of food supplies from Ukraine by restricting their own exports of wheat, corn and other foods. This drove up food prices.
The World Bank estimates that a drop in investor confidence due to trade tensions could push 30 million to 50 million people into poverty by 2030, depending on how severe the protectionist policies are. Don’t forget, 70 million people were already pushed into poverty in 2020 because of COVID-19.
For now, trade restrictions affect a small portion of global trade and there remain tremendous gains from broader regional agreements. For example, the African Continental Free Trade Area has the potential to lift 50 million people out of extreme poverty by 2035.
Trade is good for everyone. Not only does it lead to prosperity, it leads to a more secure world. Trading partners are far less likely to indulge in armed conflict due to the mutual harm to their economies. Instead, they have every incentive to thrash things out at the negotiating table.
Governments have a duty to improve the lot of their people. FTAs aren’t a silver bullet but they are certainly a piece of the larger puzzle.
Thank you all for listening. Please visit allindiansmatter.in for more columns and audio podcasts. You can follow me on Twitter at @AshrafEngineer and @AllIndiansCount. Search for the All Indians Matter page on Facebook. On Instagram, the handle is @AllIndiansMatter. Email me at editor@allindiansmatter.in. Catch you again soon.
