Free Trade Agreement (FTA)

Free Trade Agreements (FTAs) are deals between countries to make trade easier by reducing or removing taxes on imports and exports. They usually cover goods like farm or factory products, services like banking and construction, and even rules about things like intellectual property.

Sometimes, countries start with an Early Harvest Scheme, which is a smaller deal focusing on a few areas before signing a full FTA. FTAs are special because they go against the usual WTO rule that all countries should be treated equally in trade.According to an SBI report, India has signed 13 FTAs in the past five years with countries like Mauritius, the UAE, and Australia.

Key Moments Leading to the FTA

• 1991 – India opens up its economy.
• 2004 – Both countries sign a Strategic Partnership agreement.
• 2005- The Joint Economic and Trade Committee (JETCO) is set up.
• 2011 – Trade between India and the UK crosses USD 20 billion.
• 2013 – UK Prime Minister David Cameron visits India with a trade team.
• 2015 – Prime Minister Modi visits the UK to strengthen economic ties.
• 2021 – Enhanced Trade Partnership is launched to set the stage for an FTA.
• 2022 – Formal FTA talks begin.
• 2025 – India and the UK sign the Free Trade Agreement.

Why Is The India-UK Agreement Important?

On 6 May 2025, the UK and India announced a major Free Trade Agreement, described as the most ambitious trade deal either country has signed outside their usual trading partners. The deal is expected to boost trade between the two nations by £25.5 billion a year by 2040. It could also add £4.8 billion to the UK’s economy each year and increase wages by around £2.2 billion in the long run.

More than just big numbers, the agreement gives UK businesses better access to India’s huge market of 1.4 billion people, with lower tariffs on goods. In return, Indian exporters will enjoy easier access to the UK’s service-focused economy.

Key Features Under The Proposed Agreement

Under the proposed Free Trade Agreement, India will gradually reduce import duties on 90% of products from the UK over the next ten years. In return, the UK will remove tariffs on 99% of Indian goods right from day one. This includes significant cuts like reducing import duty on Scotch whisky and gin from 150% to 75% immediately, and further to 40% over ten years.

Similarly, duties on luxury cars will drop to 10% for up to 40,000 vehicles each year. Many other UK exports such as medical equipment, cosmetics, electrical machinery, chocolate, and biscuits will also see very low or zero duties.

The agreement also supports the movement of skilled professionals. The UK will provide 1,800 short-term work visas every year for Indian chefs, yoga instructors, traditional musicians, IT professionals, and healthcare workers, helping meet labour needs in key sectors.

In terms of investment and digital trade, both countries will offer fair and equal treatment to each other’s investors. India will continue to allow up to 74% foreign investment in insurance and banking. The deal also sets up a voluntary mediation process to handle any investment disputes.

On the digital front, it encourages open data flows, better transparency in algorithms, and aims to link India’s UPI with the UK’s real-time payment system, boosting cooperation in fintech and digital innovation.

The agreement simplifies trade procedures too. It promotes science-based standards for food and goods safety and offers faster recognition for special products like Darjeeling Tea and Scotch Whisky. Both sides commit to clearing goods within 48 hours, reducing paperwork, and allowing trusted traders to self-certify the origin of their goods. These changes will lower costs, especially for small and medium-sized businesses.

Sustainability and green growth are another major focus. The deal aligns with both countries’ climate goals net-zero emissions by 2050 for the UK and by 2070 for India. It supports joint efforts in areas like offshore wind energy, green hydrogen, and sustainable aviation fuel.

The UK will also help fund India’s green projects through green bond listings at GIFT City. Labour rules in the agreement support fair working conditions and aim to ensure that the shift to a green economy doesn’t come at the cost of jobs.

Finally, the agreement includes a clear dispute resolution process. If any issues arise, the countries will first try to resolve them through talks. If needed, an independent panel will step in and give a decision within 180 days. A joint UK-India Trade and Investment Council will also be set up to meet twice a year, track progress, and explore future areas of cooperation such as carbon pricing and digital services.

Advantages and Disadvantages of FTA

Free Trade Agreements (FTAs) can bring several advantages for a country like India. One of the biggest benefits is easier access to new markets. When tariffs are reduced or removed, it becomes cheaper and simpler for Indian exporters to sell their products abroad, which can lead to higher sales and business growth. FTAs also help Indian companies compete better on the global stage, giving them the same kind of access and benefits that other countries enjoy under similar deals.

Another positive side is that FTAs allow countries to protect certain industries that are considered sensitive or vulnerable. For example, sectors like agriculture or small-scale manufacturing can be placed on an exclusion list, so they’re not affected by tariff cuts. Plus, there are safety nets like anti-dumping duties and other trade protections that help guard local businesses against sudden spikes in cheap imports.

On the flip side, FTAs do have some downsides. One major concern is job loss. If local industries can’t compete with cheaper foreign products, it could lead to layoffs or even factory closures. There’s also the risk of big companies moving their operations to countries with weaker rules on labour or the environment, which could lead to issues like poor working conditions, child labour, or environmental damage.

Another challenge is becoming too dependent on international trade. While global markets can offer growth, relying on them too much can be risky especially during global crises like wars, pandemics, or natural disasters. In such situations, countries may find themselves struggling to maintain supplies or rebuild local industries that were neglected.

Key Concerns Around India’s Free Trade Agreements (FTAs)

While FTAs aim to boost trade and economic ties, India has faced several challenges in making the most of them. One major concern is the rising trade deficit. From 2017 to 2022, India’s exports to its FTA partners went up by 31%, but imports jumped by a much larger 82%. This growing gap has raised doubts about the long-term benefits of these deals.

Another issue is the low usage of FTAs by Indian businesses. Only about 25% of eligible exports make use of FTA benefits, compared to 70-80% in developed countries. This suggests that many Indian exporters either aren’t aware of the advantages or find the process too complex. Slow progress in signing deals with key markets like the EU and Canada also means missed opportunities for growth and better global access.

Competitiveness is another area of concern. India struggles to match the innovation and low-cost production of some FTA partners, like ASEAN countries and South Korea. Sectors such as electronics and textiles have seen Indian companies fall behind. On top of that, an inverted duty structure where raw materials are taxed more than finished products hurts local manufacturers.

Even though tariffs have been reduced, non-tariff barriers such as complex safety standards, environmental rules, and product regulations still make it hard for Indian goods to enter certain markets. For example, the EU’s new carbon tax rules could affect up to $8 billion worth of Indian exports, and stricter labour standards may hit sectors like textiles and leather.

There are also compliance hurdles. The paperwork and rules involved in certifying goods under FTAs can be complicated and costly for exporters, especially small businesses.

Finally, intellectual property rights (IPR) are a sensitive issue. Western partners often push for stricter IPR rules that clash with India’s existing laws especially in the pharmaceutical sector. This could affect India’s generic drug industry by making life-saving medicines less affordable.

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How India Can Make Its FTAs More Effective

To get better results from its Free Trade Agreements (FTAs), India needs a more focused and practical approach.

First, India should align its trade deals with domestic policies like the Production-Linked Incentive (PLI) scheme, which supports key manufacturing sectors. If future FTAs are designed to benefit these sectors, it can boost exports and make Indian products more competitive globally.

Next, India needs to deepen its role in global value chains. This can be done by setting up special industrial parks, training workers in skills needed by key sectors, and helping local suppliers connect with large international companies.

Micro, Small, and Medium Enterprises (MSMEs) also need more support to benefit from FTAs. India could set up dedicated MSME export centers that provide help with paperwork, market information, and FTA-related training. A new program like “MSME Global Connect” could help them find partners abroad, and special credit schemes with rewards for good export performance can boost their confidence.

India should also follow a clear and targeted strategy while negotiating future FTAs. This means identifying which sectors are ready for international competition and setting clear goals for market access. A permanent team with inputs from industry, experts, and policymakers can lead better and faster negotiations.

To stay competitive, India must invest more in research and development (R&D), especially in export-focused industries. Creating innovative, high-value products will help India meet global demand more effectively. At the same time, India’s strength in services like IT, BPO, and other tech-based sectors should be a priority in all upcoming trade agreements.

Lastly, it’s time to revisit and improve existing FTAs. India can renegotiate these deals to focus more on high-tech and value-added exports like chemicals, automotive parts, and electrical equipment moving beyond low-value trade and aiming for long-term growth.

Major FTAs Signed by India

1. India-EFTA TEPA
India signed a trade agreement with the EFTA group which includes Iceland, Liechtenstein, Norway, and Switzerland on March 10, 2024. The aim is to boost trade and investment between both sides. The agreement is expected to come into force by the end of 2025, once it’s approved by all EFTA countries.

2. ASEAN-India Free Trade Area (AIFTA)
This agreement between India and the 10 ASEAN countries created one of the world’s largest free trade zones. It covers a combined population of over 1.9 billion and a GDP of $4.8 trillion. The deal reduced tariffs on more than 90% of products, including items like palm oil, tea, coffee, and pepper.

3. Asia Pacific Trade Agreement (APTA)
Also known as the Bangkok Agreement, APTA includes countries like Bangladesh, China, South Korea, Sri Lanka, and others. The goal is to speed up economic growth by making trade in goods and services easier and more affordable within the region.

4. India-Japan CEPA
The India-Japan Comprehensive Economic Partnership Agreement removes duties on nearly 90% of traded goods. Indian exports such as textiles, chemicals, pharmaceuticals, tea, and jewelry have especially benefited from this agreement.

5. India-South Korea CEPA
Under this deal, South Korea reduced tariffs on 17 Indian goods, while India did the same for 11 Korean products. It also makes it easier for companies to invest in each other’s countries and helps Indian service providers like IT and finance enter the South Korean market.

6. India-Singapore CEPA
This agreement made trade smoother by cutting tariffs, removing duplicate rules, and easing taxes. It also supports closer ties between banks and financial firms in both countries.

7. South Asian Free Trade Area (SAFTA)
SAFTA aims to bring down customs duties to zero on most goods traded among South Asian countries. It treats countries differently based on development levels India, Pakistan, and Sri Lanka have tighter timelines, while countries like Nepal, Bhutan, and Bangladesh have more time to reduce tariffs. Sensitive goods are kept out of this list.

8. India-UAE CEPA
This trade pact removes import duties on about 90% of India’s exports to the UAE. Products like gems and jewelry, textiles, footwear, plastics, agriculture, machinery, medical devices, and cars benefit the most. It also makes it easier for Indian medicines to get fast-track approval in the UAE within 90 days if already approved by regulators in the US, UK, EU, or Japan. The UAE can also act as a gateway for Indian products heading to Africa and Europe.

9. India-Australia ECTA
This agreement eliminates tariffs on all Australian goods coming into India, including meat, wool, nuts, and seafood. In return, India reduces tariffs on most Australian imports. The deal is expected to boost jobs, especially in labor-intensive industries like textiles, furniture, leather, sports goods, and electrical machinery. It’s also expected to help businesses and consumers in both countries with more trade and movement of people.

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Double Contributions Conventions (DCC)

As part of the FTA, India and the UK are also planning a new social security arrangement called the Double Contributions Convention (DCC). This will help employees and businesses by making sure that people working temporarily in the other country do not have to pay social security in both countries at the same time.

For example, if someone from India is sent to work in the UK for up to three years, they can continue paying social security in India instead of paying in both places. This will protect their social security records and reduce extra costs for employers.

The DCC is similar to what the UK already has with countries like Canada, Japan, and those in the European Union. It will not affect people’s right to claim benefits where they pay, and it won’t remove the UK’s immigration health surcharge. The DCC will take effect once the trade deal is signed.

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Conclusion

To sum up, the India-UK Free Trade Agreement is a major step forward for both countries. It lowers tariffs, improves access to each other’s markets, and includes modern rules on services and digital trade. The deal is expected to boost business, create jobs, and open new opportunities especially for Indian exporters and professionals. It also strengthens cooperation in key areas like technology and innovation. Overall, the agreement lays the groundwork for a stronger and more future-ready partnership between India and the UK.