What is the significance of the India-U.K. free trade agreement?

The story so far: Bringing to a conclusive end negotiations that lasted for nearly three-and-half years, India and the United Kingdom agreed to move ahead with the free trade agreement (FTA). Commerce Minister Piyush Goyal said the trade agreement would set a new benchmark for “equitable and ambitious trade between two large economies”. He also underlined it as a potential catalyst to spur trade, investment, growth, innovation and for creating jobs in both economies. The Prime Ministers of the two countries are expected to meet in India soon to officially ratify the deal.

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The deal is significant for both economies on multiple counts.

To begin with, the announcement comes amidst a trade environment shrouded in uncertainties following U.S. President Donald Trump's liberation day tariffs. In this backdrop, it is imperative to note that India enjoys a positive trade balance with the U.K., therefore, it is cause for enthusiasm for exporters. India was the U.K.’s 11th-largest trading partner in 2024, accounting for 2.4% of its overall trade. With the new trade deal, the British government estimates bilateral trade would increase by $34.05 billion. The trade agreement is also of much significance to the Labour government in U.K. It is among the major trade deals ratified by 10 Downing Street since it exited the European Union. Conservative Party Prime Ministers Boris Johnson and Liz Truss had failed to facilitate its passage, notwithstanding assertions about Diwali deadlines last year.