The India–United Kingdom Free Trade Agreement (FTA), one of the most anticipated bilateral trade pacts, is aimed at doubling the trade volume between the two nations from $60 billion to $120 billion by 2030. While the agreement promises to deepen economic ties and spur job creation, it faces multiple headwinds that may impact its long-term success.
FTA at a Glance
Signed as a strategic economic pact, the India–UK FTA is expected to reduce trade barriers, promote investment, and provide greater market access for key industries in both countries. However, carbon taxation, unresolved bilateral investment mechanisms, and regulatory divergence pose significant challenges.
Trade Performance Snapshot
In the fiscal year FY25, bilateral trade between India and the UK reached $21.33 billion, with:
- India’s exports growing to $12.9 billion (a 13.3% increase), and
- Imports from the UK falling to $8.4 billion (a 6.1% decrease),
reflecting India’s strengthening export position.
Key Benefits of the FTA
- Economic Boost: Supports greater economic collaboration and long-term trade expansion.
- Job Creation: Opens new opportunities for employment in export-driven sectors.
- Market Access: Reduces tariffs and non-tariff barriers in multiple high-growth sectors.
Critical Challenges and Threats
1. UK’s Carbon Border Adjustment Mechanism (CBAM)
- Set to be implemented in 2027, CBAM will impose carbon taxes on imports from countries lacking equivalent carbon pricing.
- Likely impact on Indian exports: approximately $775 million, particularly affecting steel, aluminum, and cement.
- Indian exporters fear losing competitiveness due to ‘green taxes’ while UK exporters enjoy zero-tariff access under the FTA.
2. Bilateral Investment Treaty (BIT) Impasse
- India terminated the 1994 BIT in 2017, citing the need for modern dispute resolution frameworks.
- BIT negotiations since 2022 have made limited progress due to concerns around investor-state dispute settlements (ISDS).
- Uncertainty in the BIT has stalled potential investments from UK-based firms awaiting legal and procedural clarity.
Stakeholder Perspectives
| Aspect | Details |
|---|---|
| Trade Target | $120 billion by 2030 |
| FY25 Trade Value | $21.33 billion |
| Exports (India to UK) | $12.9 billion (+13.3%) |
| Imports (UK to India) | $8.4 billion (−6.1%) |
| Estimated Loss from CBAM | ~$775 million |
| BIT Status | Under negotiation since 2022; unresolved |
| Expert Opinion | India should push for CBAM exemptions and finalize a balanced BIT |
| Rebalancing Clause | Allows India to seek compensation for CBAM-related trade impact |
| Next Steps | Continued bilateral dialogue post-FTA to resolve critical issues |
Conclusion
While the India–UK FTA sets an ambitious and promising framework for bilateral trade growth, its success hinges on navigating complex policy hurdles such as carbon taxation and investment treaty negotiations. Both countries must maintain proactive diplomatic engagement to safeguard mutual interests and ensure the agreement delivers sustainable and inclusive economic benefits.
Glottis Limited 
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