Unlocking Growth: The India-UK FTA – A 2025 Opportunity for Indian SMEs

The year 2025 is anticipated to mark a significant milestone in the trade relationship between India and the United Kingdom with the expected finalization of the Free Trade Agreement (FTA). This comprehensive agreement is designed with the core objective of reducing tariffs and simplifying the procedures involved in cross-border trade.1 For Indian Small and Medium-sized Enterprises (SMEs), this development holds immense potential to unlock substantial growth in their export activities and to strengthen their position within supply chains that link with the UK.3 The FTA represents not just a bilateral trade arrangement but a strategic move that could redefine the economic landscape for businesses in both nations, particularly for India's dynamic SME sector. The UK's pursuit of this FTA is closely tied to its post-Brexit strategy to establish robust trade relationships with major global economies, and India stands as a pivotal partner in this endeavor.1 Simultaneously, easier access to the UK market through this agreement aligns with India's ambitions to expand its global trade footprint.

Where Do We Stand? Progress on the India-UK FTA in 2025

As of late April and early May 2025, negotiations for the India-UK FTA have reached an advanced stage, with significant headway made across a majority of the discussion points.5 Reports indicate that approximately 90% of the terms of the agreement have been mutually agreed upon, signaling a strong commitment from both sides to forge a comprehensive trade partnership.5 The remaining areas of discussion are primarily centered on the intricacies of tariff rules that will apply to specific categories of goods, reflecting the final stages of a complex negotiation process.5 Notably, a reported "mobility breakthrough" concerning visa access for Indian professionals suggests that a key demand from the Indian side, particularly relevant for SMEs in the services and technology sectors, has been largely resolved.5 Ongoing discussions at the political level are characterized by a positive sentiment, indicating a sustained momentum towards the finalization of the agreement.10 While the substantial progress signifies a strong foundation for the FTA, the fact that some issues remain unresolved and previous deadlines have been missed serves as a reminder that the ultimate conclusion will necessitate continued dedication and compromise from both governments.11 The significant agreement on the vast majority of the FTA terms demonstrates a clear intent from both India and the UK to establish a robust and multifaceted trade relationship. The progress on the mobility issue, a long-debated topic, highlights the flexibility and willingness of both nations to find common ground.

Tariff Reductions: Fueling Export Growth for Indian SMEs

The anticipated reductions in tariffs on key Indian export sectors under the FTA are poised to significantly enhance the competitiveness of Indian goods within the UK market, thereby creating new and promising avenues for growth for Indian SMEs.

Textiles and Apparel: Currently, the UK imposes tariffs on Indian textiles and apparel that range from 4% to 12%, placing Indian exporters at a cost disadvantage compared to countries that benefit from preferential trade arrangements.13 The FTA is expected to bring about substantial tariff reductions in this sector, potentially even eliminating duties in many categories. This would make Indian textile and apparel products significantly more cost-effective and appealing to UK buyers.13 Such a development is likely to enable Indian manufacturers to capture a larger share of the UK market, especially considering the growing interest among UK companies in diversifying their supply chains and reducing their reliance on major suppliers like China and Bangladesh.12 The elimination of tariffs could revolutionize the Indian fashion industry, allowing designers to compete on an equal footing with European brands that currently enjoy tariff-free access to the UK.17 This significant reduction in trade barriers is projected to lead to a considerable surge in Indian textile and apparel exports to the UK, empowering SMEs in this labor-intensive sector with increased production, job creation, and revenue streams.

Pharmaceuticals: Tariffs on pharmaceuticals are among the critical aspects still under negotiation within the FTA, with the outcome holding significant implications for the pharmaceutical trade between India and the UK.5 Reductions in these tariffs are anticipated to further strengthen the already robust pharmaceutical supply chains connecting India, a global leader in generic drug manufacturing, and the UK, a substantial consumer market.18 As India holds a prominent position in producing affordable medicines, the FTA could pave the way for a substantial increase in exports to the UK, benefiting both Indian pharmaceutical SMEs and UK consumers by ensuring a stable and cost-effective supply of essential drugs.19 Successful negotiations leading to tariff reductions in this sector would provide a considerable boost to Indian pharmaceutical SMEs, enhancing their access to the UK market and reinforcing India's vital role in the global pharmaceutical landscape.

Other Sectors: Beyond textiles and pharmaceuticals, the FTA is expected to bring about potential tariff reductions in other sectors of importance to Indian SMEs, including footwear, carpets, marine products, grapes, and mangoes.21 This anticipated liberalization across a diverse range of products signifies a comprehensive approach by both India and the UK to stimulate bilateral trade, offering varied growth opportunities for Indian SMEs engaged in different industries.

Simplifying Trade: Easing the Path for Exporters and Importers

Beyond tariff reductions, the India-UK FTA is expected to incorporate measures aimed at simplifying trade processes, thereby reducing operational costs and enhancing overall efficiency for Indian businesses involved in trade with the UK.

Streamlined Customs Procedures: The FTA has the potential to introduce more efficient and transparent customs procedures, aligning with international standards and minimizing bureaucratic complexities.23 This could involve a reduction in documentation requirements, the implementation of digital customs processes, and expedited clearance times for goods crossing the border. For Indian SMEs, the adoption of streamlined customs procedures would directly result in lower transaction costs and reduced lead times for both exports to and imports from the UK, ultimately enhancing their competitiveness and facilitating smoother supply chain management.25

Reduced Non-Tariff Barriers: The FTA is also anticipated to address various non-tariff barriers (NTBs) that can often impede international trade. These include differences in product standards, technical regulations, sanitary and phytosanitary (SPS) measures, and diverse testing requirements.26 The agreement may foster mutual recognition of standards in specific sectors, promote increased transparency in regulatory frameworks, and encourage greater cooperation on standards development. For Indian SMEs, the reduction of NTBs would significantly improve market access by lowering the costs and complexities associated with complying with the UK's regulatory requirements, enabling them to expand their market reach more effectively.2

Potential for Mutual Recognition Agreements (MRAs): While agreements on academic qualifications have already been established 29, the FTA may also pave the way for Mutual Recognition Agreements (MRAs) in specific professional sectors. Such agreements would further facilitate the movement of skilled professionals between India and the UK, boosting trade in services. Even if initially limited to certain sectors, these MRAs could enhance collaboration and service delivery by making it easier for qualified professionals to practice in both countries, benefiting Indian SMEs in sectors like IT, consulting, and potentially healthcare.

Opportunities Across Key Sectors

The India-UK FTA is poised to unlock significant growth opportunities for Indian SMEs across a range of key sectors, driven by the anticipated tariff reductions and trade simplifications.

Automotive Components: While negotiations regarding tariffs on complete vehicles are ongoing, the FTA is also expected to have a positive impact on the Indian automotive components sector, a vital segment of India's manufacturing industry.36 Reduced tariffs are likely to increase the export of Indian-made auto components to the UK, fueled by the UK's demand for cost-competitive and high-quality components.41 This presents a substantial opportunity for Indian auto component manufacturers to become key players in the UK automotive supply chain, leveraging India's existing strengths in engineering and manufacturing.

Food Products: The FTA holds considerable potential for increasing exports of a diverse array of Indian food products to the UK, benefiting from anticipated tariff reductions and improved access to the UK market.2 This includes categories such as fresh and processed fruits, vegetables, spices, rice, and other agricultural commodities. The UK's recent temporary reduction of import tariffs on various food essentials from different countries signals a potential long-term trend towards liberalization in this sector, which Indian food product SMEs are well-positioned to capitalize on.42 The FTA has the potential to open up a significant market for Indian agricultural and processed food SMEs in the UK, catering to the diverse consumer base and the demand for competitively priced, high-quality food items.

Technology: The rapidly expanding technology sector is expected to witness enhanced collaboration and trade under the FTA, encompassing IT services, software development, digital products, and potentially hardware manufacturing.5 While extensive UK work visa liberalization might not be immediate, the agreement aims to strengthen connections across services and investments, which are crucial drivers for the technology sector.46 The FTA is anticipated to foster stronger partnerships and increased trade in technology, enabling Indian tech SMEs to tap into the UK's demand for digital solutions and services, potentially leading to collaborations, joint ventures, and an expanded market presence for Indian technology companies.

UK-Linked Supply Chains: Strengthening Partnerships and Efficiency

The India-UK FTA is poised to significantly benefit Indian businesses that are integral parts of supply chains connected to the UK, fostering stronger relationships and enhancing operational efficiency. Reduced tariffs on Indian exports will directly benefit SMEs that supply goods to UK-based manufacturers, retailers, and other businesses, making their products more competitive in the UK market.47 This can lead to increased order volumes and the establishment of more stable, long-term partnerships, with Indian SMEs potentially becoming preferred suppliers due to their cost-effectiveness and skilled craftsmanship. Furthermore, the expected reduction in tariffs on specific UK goods imported by Indian SMEs as essential inputs for their manufacturing or production processes will result in lower input costs, thereby enhancing the overall competitiveness of Indian SMEs.3 This will be particularly beneficial for sectors like advanced manufacturing, pharmaceuticals, and technology that may rely on specialized machinery, high-quality raw materials, or advanced components sourced from the UK.

Navigating the Evolving Landscape and Preparing for Success

While the India-UK FTA presents substantial growth opportunities, it is crucial for Indian SMEs to proactively prepare to maximize their benefits from this evolving trade landscape. Staying informed about the final details of the agreement, including specific tariff schedules, rules of origin, and customs procedures, will be paramount.25 SMEs should thoroughly assess their current export and import strategies, identify products or sectors with the highest growth potential under the FTA, and explore new market segments within the UK. Actively seeking out and exploring potential partnerships and collaborations with UK-based businesses will be essential for leveraging the new opportunities for both exporting goods and sourcing inputs within UK-linked supply chains. Continuous improvement in product quality, design, supply chain efficiency, and the adoption of sustainable practices will be key to meeting the specific demands of the UK market.14

Conclusion: Embracing the Future of India-UK Trade

The impending India-UK FTA holds significant promise for ushering in a new era of enhanced trade and economic cooperation between the two nations, creating a mutually beneficial environment for businesses in both countries. The anticipated tariff reductions and the simplification of trade procedures offer a remarkably positive outlook for Indian SMEs, paving the way for substantial increases in exports, the strengthening of vital supply chain linkages with the UK, and significant overall business growth and expansion.52 Indian SME owners, operations managers, and export/import decision-makers are encouraged to embrace this evolving trade landscape with optimism and to proactively prepare their businesses to seize the exciting and unprecedented opportunities that the India-UK FTA is poised to deliver in 2025 and beyond. The strong political will and positive economic forecasts surrounding the FTA signal a high likelihood of its successful implementation and the realization of substantial benefits for Indian SMEs that are prepared to engage with the UK market.

Table 1: Expected Tariff Reductions for Key Indian Exports to the UK

Table 2: Potential Trade Simplification Measures and Their Benefits for SMEs

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