By Alistair Smout and Manoj Kumar
LONDON/NEW DELHI, July 24 (Reuters)
Major news in international trade: the long-awaited free trade agreement between India and the United Kingdom has finally been signed, as Modi visits the UK. This treaty marks the end of an era of countless negotiations, which were moving slowly, and ushers in a new era of trade between the two nations. What can we expect from this new treaty? Tariffs? Investments? Learn more.
A new era for the UK and India
Britain and India signed a free trade agreement on Thursday during a visit by Indian Prime Minister Narendra Modi, sealing a deal to cut tariffs on goods from textiles to whisky and cars and allow more market access for businesses. Talks on the trade pact were concluded in May after three years of stop-start negotiations, with both sides hastening efforts to clinch a deal in the shadow of tariff turmoil unleashed by U.S. President Donald Trump.
The agreement between the world’s fifth and sixth largest economies aims to increase bilateral trade by a further 25.5 billion pounds ($34 billion) by 2040. It is Britain’s biggest trade deal since it left the European Union in 2020 but its impact will be a fraction of the effect of leaving the orbit of its closest trading partner. It is India’s biggest strategic partnership with an advanced economy, and it could provide a template for a long-mooted deal with the EU and for talks with other regions.
Both sides hailed as historic a deal which will take effect following a ratification process, likely within a year, after which firms such as whisky distiller Diageo DGE.L and carmakers including BMW BMWG.DE, Nissan 7201.T, Aston Martin and Tata-owned Jaguar Land Rover could benefit from lower duties. British Prime Minister Keir Starmer said there would be huge benefits for both countries, making trade cheaper, quicker and easier.
The billion-dolar agreement and strategic benefits
Various industrial and agricultural sectors will benefit from the new treaty, particularly due to tariff reductions. For India, this treaty opens the door to potential future negotiations with other major trading blocs, which also maintain relations with the UK, strengthening its trade openness.
Modi called the agreement “a blueprint for our shared prosperity,” highlighting how Indian goods from textiles to jewelry and seafood would secure better market access. The countries also agreed a partnership covering areas such as defence and climate, and aim to strengthen co-operation on tackling crime. Modi spent nearly three hours with Starmer before going to meet King Charles at his Sandringham Estate.
Under the trade agreement, tariffs on Scotch whisky will drop to 75% from 150% immediately, and slide to 40% over the next decade. Tariffs on drinks such as brandy and rum will be cut to 110% initially and end up at 75%. On cars, India will cut duties to 10% within five years from current levels of up to 110% under a quota system that will be gradually liberalised. In return, Indian manufacturers will gain access to the British market for electric and hybrid vehicles, also under a quota system.
This agreement establishes a flexible quota system, in addition to significant tariff cuts. These planned changes seek to preserve greater economic stability in the domestic market and gradually increasing international competition at the same time. As a direct result, we will likely see strategic sectors such as energy and automotive gaining much more prominence.
New treaty opens horizons for international relations
With this new treaty, India and the UK demonstrate that foreign trade is a powerful tool for transformation and diplomatic strengthening between countries. Following this strategic repositioning, we can expect positive changes in the international market, which will be crucial for the ratification of the agreement as it is implemented, opening new horizons for international relations.