The recently implemented India-UK Free Trade Agreement (FTA), which took effect on Wednesday, is poised to significantly impact bilateral trade between the two countries, particularly benefiting India's export sectors such as textiles, garments, and home furnishings. This landmark pact eliminates or reduces tariffs on 99% of Indian exports to the UK and 90% of UK imports into India, marking the most economically significant bilateral trade deal for the UK since its departure from the European Union.
Welspun Living, one of India's largest home textile manufacturers known for producing the official Wimbledon towels, exemplifies the optimism surrounding the FTA. The company supplies bedsheets and towels to major British retailers including John Lewis and Tesco. Dipali Goenka, CEO of Welspun Living, shared with the BBC how the deal has initiated closer collaboration with UK clients, noting that British brands have recently been in India to plan long-term business strategies-a practice previously limited to their American customers.
Goenka expects their exports to the UK to grow substantially, possibly in double digits, highlighting that India previously faced a competitive disadvantage compared to Bangladesh and Pakistan. These countries benefited from the Developing Countries Trading Scheme (DCTS), which allowed duty-free access for their exports to the UK, while Indian products were subject to tariffs as high as 12%. The new FTA removes this tariff gap, potentially enabling Indian home textiles to increase their UK market share-currently estimated at around 6-7% compared to Pakistan's 55%.
Negotiations for the trade pact began in 2022 and concluded with a formal signing in July 2026. The agreement is expected to bolster sectors reliant on labor-intensive production such as textiles, footwear, cars, and marine products by making Indian goods more price-competitive in the UK market. Beyond textiles, the pact also holds significant promise for British exporters, especially in the alcohol and spirits industry.
For example, tariffs on Scotch whisky will be halved immediately from 150% to 75%, with a further phased reduction to 40% over the next decade. Avneet Singh from Modern Drinks Pvt Ltd, an import business in Delhi, described this as a substantial change likely to stimulate import growth, although the full impact will become clearer over the coming months. Singh emphasized that preparations have focused on operational readiness, including ensuring proper documentation like certificates of origin and coordinating logistics to maximize benefits from the revised tariff structure starting day one.
Despite these pockets of enthusiasm, trade experts suggest the overall impact of the FTA may be more incremental than transformational in the short term. Data from the Global Trade Research Initiative (GTRI), a Delhi-based think tank, shows that India exported goods worth $13.4 billion to the UK in the 2025-2026 financial year, with more than half already entering duty-free under the most favored nation status. On the import side, India brought in $11.7 billion worth of goods from the UK, with over 45% consisting of silver, which remains excluded from the agreement.
Ajay Srivastava of GTRI noted that the real test for the trade deal's success lies in whether products previously subject to UK tariffs ranging from 4% to 16%-including garments, footwear, carpets, cars, seafood, grapes, and mangoes-experience significant growth in orders, export volumes, and profit margins. He expects these effects to unfold over the next one to three years.
Several challenges could temper the FTA's effectiveness. For instance, the UK maintains tariffs on steel imports above specific quotas to protect its domestic industry, which may limit the scope of increased Indian exports in that sector. Additionally, the UK's proposed carbon border adjustment mechanism (CBAM), a carbon tax on imports based on their emissions, could offset tariff reductions by adding new costs to Indian exports in sectors covered by the tax, potentially creating trade frictions. Non-tariff barriers also persist, including issues related to compliance and documentation that can hinder the use of preferential tariffs.
Historically, India's utilization of free trade agreements has been relatively low. Many small and medium-sized enterprises remain unaware of the new rules or lack the capacity to navigate the paperwork required to claim tariff benefits. Consequently, only about 20-30% of India's eligible exports currently leverage FTA preferences, despite higher utilization rates on the import side. For example, an Indian garment exporter must actively inform UK buyers that import duties on products like shirts have dropped from 12% to zero and renegotiate contracts accordingly. Training and awareness programs will be crucial to ensure that businesses fully capitalize on the FTA's provisions. Srivastava emphasized that government agencies and industry bodies must take a proactive role in addressing these challenges to translate tariff reductions into tangible export growth.
Industry analysts view the timing of this opportunity as particularly favorable for India's ready-made garment (RMG) sector. According to research from CareEdge, China currently dominates UK RMG imports but has been losing market share due to rising labor costs and declining competitiveness. At the same time, Bangladesh, another key supplier, has faced socio-political turmoil until recently, prompting UK brands to diversify their sourcing strategies.
In this context, India's share of the UK RMG import market, currently about 6%, is expected to double to 12% in the near to medium term. CareEdge also projects that overall bilateral trade between India and the UK could grow by 15% annually under the new agreement, outpacing the current growth rate of 10-12%. Consumers in both countries stand to benefit from improved product quality, wider choices, and potentially better prices as trade expands.
In summary, the India-UK Free Trade Agreement represents a significant development in the economic relationship between the two nations. It removes many tariff barriers and creates new opportunities for Indian exporters, especially in labor-intensive sectors such as textiles and garments, while also opening doors for British exporters like those in the spirits industry. However, the full benefits of the deal will depend on overcoming challenges related to tariff quotas, carbon taxes, and non-tariff barriers, as well as increasing awareness and compliance among exporters. The coming years will be critical in determining whether the FTA can deliver on its promise to boost trade, enhance competitiveness, and deepen economic ties between India and the UK.