UK and India Ink Landmark Free Trade Pact to Boost Trade by £25.5 Billion Annually by 2040

The United Kingdom and India have finalized a landmark free trade agreement during Indian Prime Minister Narendra Modi’s visit to London, aiming to elevate bilateral trade by up to £25.5 billion annually by 2040. The pact, the UK’s largest post-Brexit trade deal and India’s first with a European economy, is designed to slash tariffs and enhance economic collaboration between the world’s fifth and sixth largest economies [1][2]. Under the agreement, 90% of UK exports to India will face reduced tariffs, with 85% becoming fully tariff-free, while Indian exports to the UK will see similar benefits [3]. The deal is projected to add nearly £5 billion ($6.8 billion) to the UK economy annually, with potential wage increases and broader economic stimulus anticipated [4].

The agreement, signed by UK Secretary of State for Business and Trade Jonathan Reynolds and India’s Minister of Industry and Supply Piyush Goyal, was witnessed by UK Chancellor of the Exchequer Rachel Reeves and India’s External Affairs Minister Subrahmanyam Jaishankar. Both UK Prime Minister Keir Starmer and India’s Narendra Modi emphasized the deal’s transformative potential. Starmer highlighted its role in boosting living standards and reducing trade product costs, while Modi framed it as a gateway for Indian agricultural, textile, jewelry, and engineering exports into UK markets [1]. The deal follows months of negotiations to resolve disputes over visas, tax concessions, and tariff reductions, marking a historic milestone in post-Brexit UK-India relations [1].

Tariff reductions under the agreement will significantly impact key sectors. For instance, whisky and gin exports from the UK to India will see taxes cut to 75% initially, further dropping to 40% in the agreement’s tenth year. Automotive tariffs, previously as high as 110% under quotas, will fall to 10% [1]. These changes are expected to enhance market access for both economies, with India gaining entry to UK demand for agricultural goods and the UK opening its market to Indian manufacturing. The pact also includes provisions for energy cooperation and digital trade, aligning with India’s National Education Policy and positioning the UK as a strategic partner in India’s infrastructure and skills development [5].

Analysts note the deal’s long-term success depends on implementation and market responsiveness. While the £25.5 billion target by 2040 is ambitious, historical trade agreements often face challenges in meeting initial forecasts due to regulatory hurdles or shifting economic conditions [7]. However, the focus on tariff reductions and sector-specific incentives—such as expanded access for UK financial services and Indian agricultural products—provides a concrete foundation for growth. The inclusion of digital trade frameworks, critical for the UK’s post-Brexit economy, further strengthens the pact’s potential to drive innovation [8].

The timing of the deal, announced ahead of India’s 2047 independence centenary, underscores both nations’ strategic ambitions. For the UK, the agreement is a cornerstone of its global Britain strategy, diversifying trade relationships beyond the EU. For India, it supports the “Make in India” initiative by enabling access to advanced UK technologies and reducing reliance on other trade partners [9]. However, stakeholders caution that sectoral impacts may vary, with manufacturing and agriculture likely to see quicker gains compared to services, where regulatory alignment remains complex [10].

The agreement has already sparked optimism in financial markets, with analysts noting its potential to stabilize trade flows amid global economic uncertainty. By addressing modern trade priorities such as intellectual property rights and e-commerce standards, the pact offers a framework for future negotiations on climate and labor standards [11].

Sources:

[1] [Britain and India sign free trade pact during Modi visit](https://www.reuters.com/world/uk/britain-india-sign-free-trade-pact-during-modi-visit-2025-07-23/)

[2] [Britain and India to sign landmark free trade pact during...](https://www.reuters.com/world/uk/britain-india-sign-landmark-free-trade-pact-during-modi-visit-2025-07-23/)

[3] [UK and India seal free trade agreement slashing tariffs, barriers](https://www.businesstimes.com.sg/international/global/uk-and-india-seal-free-trade-agreement-slashing-tariffs-barriers)

[4] [India’s Modi and UK PM Starmer ink trade deal](https://gulfnews.com/world/asia/india/india-s-modi-and-uk-pm-starmer-ink-trade-deal-2-1.500209783)

[5] [NEP gets global push as UK-India trade deal recognises...](https://www.tribuneindia.com/news/world/nep-gets-global-push-as-uk-india-trade-deal-recognises-education-as-core-pillar-of-strategic-ties/)

[7] [Leaders Starmer and Modi hail long-sought India-UK trade...](https://www.newsday.com/news/nation/uk-india-trade-deal-starmer-modi-u12459)

[8] [Britain and India sign free trade pact during Modi visit - World](https://www.dawn.com/news/1926311)

[9] [Britain and India sign free trade pact during Modi visit](https://www.reuters.com/world/uk/britain-india-sign-free-trade-pact-during-modi-visit-2025-07-23/)

[10] [UK, India strike deal to boost trade by up to £25.5 billion...](https://www.msn.com/en-us/money/markets/uk-india-strike-deal-to-boost-trade-by-up-to-25-5-billion-per-year/ar-AA1JeclD?ocid=finance-verthp-feeds)

[11] [Britain and India sign free trade pact during Modi visit - World](https://www.dawn.com/news/1926311)