Opening the Gates: How India–UK Tariff Reductions Are Reshaping Trade

By: Dr Mohan Kaul, Ahana Raina

After more than three years of negotiations and multiple rounds of talks, India and the United Kingdom concluded one of the most consequential bilateral trade agreements in either country’s recent economic history. The India–UK Comprehensive Economic and Trade Agreement (CETA), agreed in principle on 6 May 2025 and formally signed in July 2025, has already been described by UK policymakers as the country’s most significant bilateral trade agreement since Brexit.

At the centre of the agreement lies an ambitious programme of tariff reductions, market access commitments, and regulatory cooperation measures that are expected to reshape the commercial relationship between the world’s fifth- and sixth-largest economies. For businesses across manufacturing, automotive, textiles, consumer goods, healthcare, technology, and professional services, the agreement represents not merely a trade facilitation exercise but a structural opening of markets that had historically remained heavily protected.

The Scale of the Agreement

The headline commitments are substantial. The United Kingdom has agreed to eliminate tariffs on approximately 99% of Indian goods exports by value, effectively granting Indian exporters near-complete preferential access to one of Europe’s largest consumer markets.

India’s commitments are more phased and calibrated, reflecting its traditionally protectionist tariff structure. India has historically maintained some of the highest average tariff rates among G20 economies, with import duties exceeding 100% on automobiles and 150% on alcoholic beverages. Under the agreement, India will reduce or eliminate tariffs on around 90% of tariff lines, with a large proportion becoming duty-free either immediately or over phased implementation periods extending up to 10 years.

According to UK government estimates, tariff reductions could save British exporters hundreds of millions of pounds annually once the agreement is fully implemented. Bilateral trade between the two countries — estimated at approximately £41–43 billion ($52–55 billion) annually in recent years — is projected by several analysts to potentially double by 2030–2040 if implementation proceeds effectively.

The agreement also carries strategic significance beyond trade volumes. For the UK, it demonstrates the country’s ability to negotiate major post-Brexit trade agreements independently. For India, it reflects a broader shift towards targeted bilateral trade partnerships aimed at expanding export competitiveness while protecting strategically sensitive domestic sectors.

Spirits and Beverages: A Long-Awaited Opening

One of the most discussed aspects of the agreement concerns alcoholic beverages, particularly Scotch whisky and gin. India is the world’s largest whisky market by volume, yet imported spirits have historically faced tariffs of 150%, making premium imported products prohibitively expensive for most consumers.

Under the agreement, tariffs on whisky and gin are expected to reduce progressively — reportedly falling from 150% to 75% initially, then further over a phased period. For UK distillers, this represents a potentially transformative commercial opportunity.

The Scotch Whisky Association has estimated that lower tariffs could substantially increase exports to India over the coming decade.

For Indian consumers, the changes are likely to improve access to international premium brands at more competitive prices. For UK producers, the agreement enables more realistic long-term market entry and expansion strategies in one of the world’s fastest-growing premium beverage markets.

Automotive Trade: From Protection to Gradual Liberalisation

Few sectors illustrate India’s historic tariff barriers more clearly than the automobile sector. Import duties exceeding 100% have long restricted foreign vehicle sales to ultra premium market segments.

The new agreement introduces a phased reduction mechanism under quota arrangements, reportedly lowering tariffs on certain categories of UK-manufactured vehicles to 10% over time. This is particularly significant for luxury and performance automotive brands such as Jaguar Land Rover, Bentley Motors, Aston Martin, and Rolls-Royce Motor Cars.

Importantly, the agreement extends beyond traditional internal combustion vehicles to include electric and hybrid vehicles, aligning with India’s rapidly expanding clean mobility sector. India’s electric vehicle market has been growing at significant double-digit annual rates, supported by government incentives and rising consumer demand.

The implications extend throughout the automotive supply chain. UK engineering firms, component manufacturers, specialist technology providers, and mobility innovation companies may now gain improved access to one of the world’s largest future automotive markets.

Textiles, Apparel, Footwear and Consumer Manufacturing

While the UK gains access to India’s protected consumer markets, Indian manufacturers stand to benefit enormously from near-complete tariff elimination in the UK market.

Sectors expected to gain substantially include:

•          Textiles and garments

•          Footwear and leather goods

•          Gems and jewellery

•          Sports goods and toys

•          Auto components and light engineering products

These industries form the backbone of India’s labour-intensive export economy. Preferential zero-duty access enhances India’s competitiveness relative to other exporting nations, particularly in sectors where margins are narrow and tariff differentials strongly influence sourcing decisions.

Indian manufacturers that previously competed against suppliers from countries already benefiting from trade preferences with the UK may now be on a more level footing. This could stimulate investment in manufacturing capacity, logistics, and export-oriented production across several Indian industrial clusters.

Medical Devices, Life Sciences and Advanced Manufacturing

Beyond consumer-facing industries, the agreement also delivers important gains for advanced manufacturing and professional sectors.

Tariff reductions are expected to improve market access for:

•          Medical devices

•          Scientific instruments

•          Aerospace components

•          Cosmetics and personal care products

•          Industrial machinery

•          Precision engineering products

This is especially important given India’s rapidly expanding healthcare sector and growing demand for advanced medical technology. UK life sciences and healthcare companies may become more price-competitive in a market projected to experience substantial long-term growth in healthcare infrastructure.

For Indian pharmaceutical and medical manufacturing companies, improved access to the UK market may further strengthen India’s position as a global healthcare manufacturing hub.

Rules of Origin and Compliance: The Real Operational Challenge

Although tariff reductions attract headlines, the practical success of the agreement will depend heavily on rules of origin and compliance systems.

Preferential tariffs apply only where products meet specific origin requirements demonstrating sufficient production or value addition in either India or the UK. Businesses with globally integrated supply chains will therefore need to assess carefully whether their products qualify under the agreement.

For many companies, particularly SMEs, the greatest challenge may not be tariffs themselves but understanding documentation requirements, customs procedures, certification systems, and compliance obligations.

Firms that invest early in compliance capabilities, supply chain restructuring, and local partnerships are likely to benefit disproportionately from the agreement.

Sensitive Sectors and Strategic Exclusions

Despite its ambition, the agreement contains important carve-outs reflecting political and economic sensitivities on both sides.

India has reportedly excluded or protected sectors, including:

•          Dairy products

•          Certain agricultural commodities

•          Smartphones and strategic electronics

•          Some chemical and industrial products

•          Sensitive agricultural oils and food products

The UK has likewise maintained protections in selected agricultural categories, including poultry, eggs, rice, and sugar-related products.

These exclusions are commercially significant. Businesses should avoid assuming universal tariff liberalisation and instead examine the detailed tariff schedules and product-specific commitments once the final legal text and implementation schedules are fully operational.

Strategic and Geopolitical Importance

The India–UK trade agreement is important not only commercially, but geopolitically.

For the United Kingdom, the agreement supports its post-Brexit trade diversification strategy and strengthens economic engagement with the Indo-Pacific region. For India, the agreement enhances its position as a preferred global manufacturing and investment destination while deepening ties with a major financial and technological economy.

The agreement may also serve as a template for future UK agreements with other fast-growing Asian economies and could influence broader global trade negotiations at a time when multilateral WTO-based liberalisation has slowed considerably.

The Bigger Picture

While some tariff reductions will take years to fully materialise, the direction of travel is clear: the economic relationship between India and the UK is entering a more integrated phase.

The agreement creates opportunities not only for exporters, but also for:

•          Joint ventures

•          Manufacturing partnerships

•          Supply-chain diversification

•          Technology transfer

•          Investment flows

•          Innovation collaboration

•          Services expansion

Businesses that move early to understand the agreement’s detailed provisions — particularly tariff schedules, quota systems, regulatory standards, and rules of origin — will be best positioned to benefit from the structural changes now underway.

The tariff walls that defined much of the India–UK trading relationship for decades are beginning to come down. The companies that establish market presence, partnerships, and operational capability during this transition period are likely to be the long-term winners of this new era in India–UK trade relations.

References

EY India. (2025). India–UK free trade agreement: Key highlights and implications for businesses. Ernst & Young LLP. https://www.ey.com/en_in/insights/tax/india-uk-fta

Hogan Lovells. (2025). India–UK free trade agreement: What businesses need to know. Hogan Lovells International LLP. https://www.hoganlovells.com/en/publications/india-uk-free-trade-agreement

House of Commons Library. (2025). UK–India free trade agreement (Research Briefing CBP-10222). UK Parliament. https://commonslibrary.parliament.uk/research-briefings/cbp-10222/

India Briefing. (2025, May). India–UK FTA: Sector-by-sector impact and market access guide. Dezan Shira & Associates. https://www.india-briefing.com/news/india-uk-fta-sector-impact.html

King & Spalding. (2025). India–UK trade deal: Tariff schedules, exclusions, and compliance considerations [Client alert]. King & Spalding LLP. https://www.kslaw.com/news-and-insights/india-uk-trade-deal

NDM Advisors. (2025). India–UK FTA: Trade projections and business implications. NDM Advisors LLP. https://www.ndmadvisors.com/india-uk-fta-report

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TalesXP. (2025). Scotch whisky and Indian textiles: Winners from the India–UK free trade deal. TalesXP Media. https://www.talesxp.com/india-uk-fta-winners