Prime Minister Narendra Modi made sure he was in the UK for the signing of the Free Trade Agreement (FTA) between the two countries, also known as the Comprehensive Economic and Trade Agreement (CETA). This underscored the importance both nations attached to the culmination of hard negotiations that began in 2022.

As at the end of 2024 (Q4) the trade between the two countries stood at 42.6 billion GBP. This included UK exports to India of 17.1 billion GBP and imports from India of 25.5 billion GBP. India enjoyed a trade surplus of approx. 8.4 billion GBP. [1]

The FTA seeks to increase trade and investment flows between India and the UK for mutual economic benefit by reducing and simplifying tariffs. It is expected to enable smoother cross-border trade and enhance market access for both countries. Total trade between the countries is expected to nearly double by 2030.

India’s Economic and Diplomatic Strength

The deal stands as a testament to India’s economic and diplomatic clout in stitching up complicated trade negotiations. In the last eleven years we have seen the rise of a confident India that has managed to stay clear of the economic morass witnessed, particularly in Europe and America.

Hailed as UK’s most important trade pact since Brexit, the deal with India comes at a time when the UK economy is plagued by poor growth, rising inflation and consequent rise in cost of living that has resulted in alarming poverty levels. Uncertainties engendered by a turbulent tariff regime from across the pond have only added to UK’s woes. Hence the high expectations of the deal as far as the UK is concerned are understandable.

For India, it provides a greater access to its markets by eliminating tariffs on 99% of its exports. This elimination of tariffs may also provide India an advantage over other countries such as China, Vietnam and Indonesia by lowering costs to British consumers. Further, India’s high-tech workers stand to benefit from the relaxed visa norms the deal offers. [2]

As mentioned already, it is a significant and irreversible climb up for India on the global stage in terms of economic power and the prestige it brings along. Shashi Tharoor, India’s well known Member of Parliament, has called the deal “beyond hesitations”. Be that as it may, only time will tell which country emerges as the real beneficiary of the deal. [3]

A Mixed Blessing for the UK

While it is a clear diplomatic and economic win for India, the UK may only provide temporary relief and short terms economic gains. An impact assessment study of the deal conducted by the government of UK shows that over a ten-year period UK exports to India will increase by 60% while imports from India will rise by 25%. [4]

Despite high expectations for immediate outcomes from the deal, the fact remains that the gains will be realized over the long term, i.e. in the next ten years. As far as the UK is concerned, there may be more gains in the short term like increased exports in luxury automobiles, EVs and scotch whiskey. But these are more likely to be ephemeral gains because of the structural challenges inherent in the UK economy.

Structural Challenges Facing the UK

For starters, per IMF, the UK had a GDP growth of 0.1% in 2023 and -0.5% in 2024. Continuing low growth has already negatively impacted productivity and wage growth. In such circumstances, how and when the economy will turn around is anybody’s guess.

Given the political travails of the Keir Starmer government resulting from a highly polarized polity and civil tensions, strong economic reforms for rejuvenating the economy may continue to be a pipe dream. The government is yet to come up with transformative long-term strategies to successfully alleviate the strain on the economy - on public services and health care systems - caused by an ageing population.

The Russia Ukraine war has already brought severe burdens on the economy. The UK has already pledged over 18.3 billion GBP. Given that there are no signs of ending the war, the economic cost to the UK may continue to rise. [5] Further, adding to the burden, the UK has pledged to contribute up to 5% of its GDP by 2035 to meet NATO target. [6] Given the panoply of challenges confronting the government, it may be a serious uphill task for the UK government to successfully benefit from the CETA deal with India.

India: The Likely Long-Term Beneficiary

On the other hand, the India’s shrewd diplomatic negotiating skills have enabled it to cash in on the current global trade uncertainties brought on by Trump’s tariff regime. An energized economy growing at ~6.5%, younger demographics and competitive export environment will yield immediate benefits from the removal of tariffs. Indian professionals will soon get visa for work in UK. 

India’s geopolitical agility has enabled it to capitalize on current uncertainties further consolidating its global economic influence. It has deep and growing cutting edge manufacturing and R&D infrastructure, including space and advanced defense technologies. Global supply chain systems were weaponized during Covid and post-Covid era. Consistent efforts over the years by India has resulted in a reliable alternative global supply provider.

All these have positioned India to adroitly exploit global trade opportunities that are emerging from regions frustrated by the current uncertainties. India appears to be at the right place at the right time.

Challenging the Unipolar World Dispensation

India’s CETA with UK may also be an indirect answer to the USA which has muddied global trade and tariff architecture. It has demonstrated to other economic blocks like the European Union (EU), G-7, Russia and China that there may be alternative viable trade arrangements that can obviate the one-sidedness of a unipolar world. This will certainly spawn multiple bilateral agreements along the lines of India’s CETA.

This will open new vistas where trade between nations in mutual currencies will increase participants and deepen volumes. Cross-border settlement platforms have been gaining foothold among many countries in Asia and Africa as well as Europe. Following the success of Indo-UK CETA, these platforms will gain further momentum and begin a slow abandonment of established platforms like SWIFT.

India’s trade deal with the UK is a winner that has overcome ‘historical hesitations’ between the two countries. It is also a reminder that trade will follow new and innovative pathways in a multipolar world where the center of gravity is slowly but surely shifting to the emerging economic powerhouses in Asia.

References

1] Business, industry and trade - Office for National Statistics

2] India-UK FTA: How India could cut into China, Bangladesh and Vietnam’s share of exports – Firstpost

3] Beyond Hesitations: Why The India-UK Trade Deal Is An Inflexion Point

4] Impact assessment of the Free Trade Agreement between the UK and India executive summary (web version) - GOV.UK

5] UK support to Ukraine: factsheet - GOV.UK

6] At NATO, UK's Starmer pledges increase in defence spending to 5% | Reuters