UK-India Trade Pact Signed Amid Shifting Global Trade Policies

UK and India Formalize Landmark Trade Agreement Amid Shifting Global Dynamics

The United Kingdom and India signed a comprehensive Free Trade Agreement (FTA) on July 24, 2025, representing a pivotal moment in bilateral economic relations. The pact, finalized after more than three years of negotiations, marks India's first major FTA in over a decade and the UK's fourth since its departure from the European Union in 2020. This agreement is strategically positioned amidst an increasingly fragmented global trade landscape characterized by rising protectionist policies.

Key Provisions and Economic Projections

The India-UK FTA is designed to significantly expand trade in goods and services, enhance professional mobility, strengthen regulatory cooperation, and boost cross-border investment. The agreement aims to increase annual bilateral trade by £25.5 billion (US$34.5 billion), with a target to double overall trade to US$120 billion by 2030 and achieve an additional US$40 billion by 2040.

Under the terms of the agreement, 99% of Indian exports to the UK will benefit from zero or reduced tariffs, encompassing key sectors such as textiles, apparel, gems, jewelry, leather, machinery, auto parts, pharmaceuticals, and agricultural products. This is anticipated to drive a 20-40% rise in Indian exports within these categories. Conversely, the average Indian import tariff on UK goods is set to decrease from 15% to 3%, providing duty-free access for 64% of UK exports, particularly benefiting alcoholic beverages, cosmetics, processed food, and digital services.

Economically, the UK government projects the FTA could add £4.8 billion (US$6.5 billion) to the nation's GDP annually and deliver a total annual wage boost of £2.2 billion (US$3 billion). Consumers are expected to benefit from lower prices and increased product variety. For India, government estimates suggest the agreement will add nearly £5.1 billion annually to its GDP by 2035.

Strategic Investments and Job Creation

The FTA has already spurred significant investment commitments in both nations. Indian companies have pledged £1.3 billion ($1.7 billion) in new investments across the UK, creating an estimated 6,900 jobs in sectors including engineering, technology, and film production. Notably, Yash Raj Films committed to producing three new Bollywood blockbusters in the UK, projected to generate over 3,000 jobs.

Simultaneously, UK companies are poised to invest £3.6 billion in India. Graphcore, a firm part of the SoftBank Group Corp. (9984.T), announced plans for a £1 billion investment in a new AI engineering campus in Bengaluru, anticipated to create 500 high-skilled jobs in India's burgeoning semiconductor industry. Other significant UK investments include Tide's £500 million commitment to expand its Indian workforce and Revolut's similar £500 million allocation for its India operations. Additionally, TVS Motor plans £250 million over five years in Norton Motorcycles and e-bikes, creating 300 UK jobs, while Muthoot Finance UK Limited aims to invest £100 million to expand its branch network, creating 80 new jobs.

UK Prime Minister Keir Starmer emphasized the immediate impact of the deal, stating:

"Alongside a 125-strong business delegation, we have seized the opportunities created by our trade deal with India in full this week. We've secured new investments into the UK, and created 10,600 jobs across the entire country, in some of our most thriving industries."

Market Context: Rising Protectionism and US Tariffs

The signing of the India-UK FTA occurred against a backdrop of increasing global trade tensions, most notably evidenced by recent US tariff actions. On August 1, 2025, the U.S. imposed 25% reciprocal tariffs on Indian goods, impacting over $42 billion worth of exports from India in sectors such as textiles, pharmaceuticals, electronics, and auto components. The India-UK FTA, having been finalized days prior, functions as a strategic countermeasure, providing a tariff-free avenue for a substantial portion of Indian exports and thereby acting as a geopolitical hedge against these disruptions.

Analysis suggests that redirecting merely 15-25% of India's US-bound trade to the UK could recover $10-12 billion in Indian exports by fiscal year 2026. This move highlights a broader trend where nations are diversifying trade partners to mitigate risks associated with protectionist measures.

The broader global implications are significant. The World Trade Organization (WTO), on October 7, 2025, revised its 2026 forecast for global merchandise trade volume growth downwards to 0.5% from an earlier 1.8%, primarily citing the anticipated delayed effects of US President Donald Trump's tariffs. This reflects a movement away from a unified, rules-based global trading system towards a more fragmented landscape of regional blocs and bilateral agreements. The US, which accounts for 13% of world trade, may increasingly face trade discrimination in foreign markets as other countries pursue reciprocal agreements and defensive measures, as seen with Canada's steel import restrictions.

Outlook and Implications

The India-UK FTA represents more than just a bilateral economic pact; it signals a strategic reorientation in global trade policy. For multinational corporations, this environment necessitates navigating a more complex patchwork of trade rules and tariffs. Investors are advised to heighten their assessment of geopolitical risks and shifts in trade policy, as these factors will increasingly influence global supply chains, market access, and the competitive positioning of export-oriented industries. The potential for trade diversion and new alliances could also impact the profitability and market standing of companies heavily reliant on traditional trade routes or subject to new tariff regimes.

Moving forward, key factors to monitor include the continued evolution of US trade policy, the responses and formation of trade blocs by other major economies, and the tangible impacts of the India-UK FTA on actual trade flows and investment patterns. This agreement underscores a proactive approach to securing economic resilience and fostering growth in an era of unpredictable global trade dynamics.