India-UK Trade Deal Takes Effect Amid Hopes and Cautious Outlook

A comprehensive free trade agreement between India and the United Kingdom has come into effect, signaling a significant step in the economic relationship between the two nations. The pact is expected to impact various sectors, from Scotch whisky and textiles to automotive and services.

Impact on Key Sectors

For the Scotch whisky industry, the deal represents a notable shift. The agreement stipulates a reduction in customs duties on Scotch whisky from 150% to 75% immediately, with a further gradual reduction to 40% over the next decade. Avneet Singh of Modern Drinks Pvt Ltd, an import house in Delhi, described this as a "real shift, not a small tweak." He indicated that businesses are actively preparing by ensuring necessary trade documentation and coordinating logistics to benefit from the revised tariff structure from the outset. However, Singh also noted that the period so far has been one of "careful preparation rather than rapid expansion," with more significant changes anticipated once businesses realize actual savings on imported goods.

The agreement also aims to boost exports of Indian textiles and garments, which previously faced UK tariffs ranging from 4% to 16%. Ajay Srivastava of the Global Trade Research Initiative (GTRI) stated that the true success of the free trade agreement (FTA) will be evident in increased export orders, higher volumes, and improved profit margins for such products. These indicators are expected to become visible within the next one to three years.

Trade Dynamics and Challenges

Data from GTRI indicates that India exported $13.4 billion worth of goods to the UK in the financial year 2025-2026. However, more than half of these exports already entered the UK duty-free under its most favored nation regime. On the import side, India brought in $11.7 billion from the UK, with over 45% of this trade consisting of silver, which is excluded from the agreement.

Trade experts suggest that the overall impact of the deal might be "incremental rather than transformational" beyond specific sectors. Unresolved challenges, such as the UK's continued tariffs on steel imports above a certain quota to protect domestic producers, could hinder the full utilization of the agreement's scope. Additionally, the UK's proposed carbon tax, known as CBAM, could potentially increase the effective cost of Indian exports in covered sectors, even if FTA tariffs are reduced, creating new trade frictions.

The FTA, signed in July 2025, between the world's fifth and sixth largest economies, seeks to deepen economic ties. Its full impact and effectiveness will become clearer in the coming months and years as businesses adapt to the new trade landscape and potential challenges are addressed.