India–UK FTA signals strategic shift in trade policy

For India, a country navigating the aspirations of becoming a $5 trillion economy over the next three years amid the new realities of a fragmented global order, foreign trade policy is no longer an auxiliary lever of economic growth but a central pillar of global positioning. The recently signed India–UK Free Trade Agreement (FTA) marks an important milestone. It will reshape how India realigns and revisits its economic ties with the rest of the world, unlocking billions in opportunities for an inclusive India.

Historically, countries have used trade to build economic and strategic partnerships, create supply chain resilience, hedge political risks, and deepen their spheres of influence across the globe. In many cases, social and environmental clauses are embedded to reflect national values. India, too, is learning the ropes and adapting to these global templates. Recent trade agreements — such as those with the UAE (CEPA), Australia (ECTA), EFTA, and now the UK — have ushered in a new era of economic partnerships. These agreements reflect a deeper transformation in India’s approach to trade negotiations. India is leveraging its growing market size, rising competitiveness in services and manufacturing, and increasing geopolitical weight to craft agreements aligned with its long-term strategic priorities.

A strategic playbook for balancing priorities

Take the India–UK trade deal (CETA), for instance. The agreement provides duty-free access to 99% of Indian exports to the UK, which is set to boost labour-intensive manufacturing and services sectors. Sectors in focus — including textiles, leather, footwear, gems and jewellery, toys, marine products, and sports goods — are also among India’s largest employers. These sectors are particularly vital in rural and semi-urban regions, primarily driven by MSMEs and artisan-based enterprises.

With improved access to a high-income market like the UK, manufacturers in these industries are likely to witness a surge in export demand, especially from the Indian diaspora settled there for decades. This could generate over one million jobs within the next five years.

At the same time, the trade agreement goes beyond traditional sectors, opening new avenues in engineering goods, auto components, and organic chemicals — accelerating India’s integration into global value chains. In recent years, India’s exports in these segments have improved, with the share of high-value-added manufacturing goods rising from 17% to 32% of total exports over the last decade.

CETA also covers critical sectors like IT and IT-enabled services, finance, legal, professional, and educational services, along with digital trade. With simplified rules for cross-border service delivery, Indian companies are expected to scale their presence in the UK market. Importantly, the agreement also enhances mobility for Indian professionals.

Inclusive growth at the core

What sets the India–UK FTA apart is its focus on inclusive growth. The agreement includes provisions designed to benefit women entrepreneurs, MSMEs, farmers, fishermen, startups, and youth-led enterprises. A key outcome is expected to be large-scale employment for women and informal workers, along with a boost in credit growth as small businesses expand capacity. This will enable broader-based rural growth, improving income levels and consumption patterns.The trade agreement’s design shows that India is now adopting a forward-looking, strategic policy framework for future trade negotiations. It is prioritizing sectors with high employment potential, negotiating for talent mobility, ensuring inclusive and broad-based benefits, highlighting services and digital trade, and embedding resilience in its supply chains.

This marks a significant policy shift — from protectionism to pragmatism, from reactive and tactical approaches to proactive and strategic policymaking. It reflects maturity in India’s trade strategy at a time when global trade rules are being rewritten.

Looking ahead

The future lies in balancing ambition with realism. All eyes will now be on the upcoming trade agreements with the U.S. and EU, both expected to be signed this year. These agreements are likely to focus on unlocking the potential of the rural economy and leveraging India’s demographic advantage to attract fresh investments and drive stronger GDP growth.

(Rumki Majumdar, Economist, Deloitte India)

*This article has been taken from Moneycontrol dated 31 July 2025