India-UK FTA: Balancing trade dynamics amid US tariff concerns

The highly anticipated Free Trade Agreement (FTA) between the UK and India has been officially signed, promising to significantly reshape the trade landscape for both nations.

The agreement, signed in the presence of Indian Prime Minister Narendra Modi and his British counterpart Keir Starmer, is expected to increase annual trade by 34.53 billion dollars and aims to double bilateral trade to 120 billion dollars by 2030. A key feature of the pact is the elimination of import duties on major Indian export goods, including apparel, leather goods, and footwear.

A game-changer for India's apparel sector

The removal of tariffs, which typically range from 8-12 percent, is set to make Indian apparel and home textiles more competitive and affordable in the UK. This will particularly benefit exporters in major hubs like Ludhiana, Surat, and Tirupur.

The Apparel Export Promotion Council (AEPC) vice chairman, A. Sakthivel, hailed the agreement as a historic achievement, projecting that India’s ready-made garment (RMG) exports to the UK will more than double from the current 1.45 billion dollars to 3.25 billion dollars in the near future. Knitwear exports alone are expected to surge from 0.8 billion dollars to nearly 2 billion dollars, accounting for roughly 70 percent of total RMG exports to the UK.

Rajeev Gupta, joint managing director of RSWM Ltd, echoed this sentiment, stating that the FTA is a "game-changing shift" that removes the 9-12 percent tariff disadvantage, allowing Indian exporters to compete directly with zero-duty countries like Bangladesh and Pakistan. He added that the agreement reflects a growing trust in India's manufacturing capabilities and will lay the groundwork for export growth, innovation, and greater integration with global fashion supply chains.

The FTA also includes provisions for digital, paperless trade and the mutual acceptance of safety and hygiene standards, which will streamline trade processes and guarantee product quality.

Balancing global trade dynamics

The signing of the India-UK FTA comes at a crucial time, as New Delhi navigates complex trade relations with other major partners. The agreement stands in stark contrast to the current dynamic with the U.S., where a recent tariff threat has created a layer of uncertainty for Indian exporters.

President Donald Trump has been vocal about India's high tariffs, suggesting a 25 percent tariff on Indian goods and an "unspecified penalty" for its relationship with Russia.

Neil Saunders, an analyst at GlobalData, and Dr. Sheng Lu of the University of Delaware, have both expressed concern that this U.S. tariff threat could make India less competitive as a manufacturing hub and potentially hinder new commitments from U.S. fashion companies.

However, the India-UK FTA provides a counterbalance to this uncertainty. As Rajeev Gupta of RSWM Ltd. commented, "The 25% tariff by the U.S. comes as a temporary setback... Our Free Trade Agreement with the UK opens up varied opportunities and is a welcoming move for the industry."

New opportunities and challenges for both sides

The FTA promises benefits for both Indian and British consumers and businesses. For Indian buyers, the agreement means lower prices on British footwear brands like Clarks and Dr. Martens, and on high-end fashion houses such as Burberry and Ted Baker. This increased affordability is expected to drive new fashion trends and expand the market for British goods in India.

For Indian brands, the FTA "unlocks a powerful runway... to export both product and purpose," said Rakesh Bali, senior vice president and head of marketing at Reliance Industries Limited. He highlighted the opportunity for Indian fashion and lifestyle brands to launch in the UK with a strong sustainability story, noting that this "can catalyse business, product and knowledge exchange" between the two nations.

Bali also pointed out a key challenge for Indian exporters, stating that "the key challenge will be aligning with the UK’s high expectations around ESG, circularity, and transparency." He stressed that while cost and capacity are strengths, "long-term success will require embedding sustainability into brand and product DNA."

For UK businesses entering the Indian market, Bali said they will need to adapt to regional consumer nuances and evolving sustainability preferences. He explained that "Indian consumers, especially Gen Z and Millennials, are increasingly drawn to eco-conscious, craft-based brands with a strong cultural storytelling."

The India-UK FTA is seen as a comprehensive economic enabler that will not only boost trade in key sectors but also foster greater market access, regulatory cooperation, and job creation in both nations.