India-UK Trade Surplus Edges Up as Free Trade Deal Aims to Expand Commerce
| 2025-05-16
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India's trade surplus with the UK has risen slightly over the past decade. A new Free Trade Agreement is set to improve bilateral trade and investment flows.
India's trade surplus with the United Kingdom increased marginally over the past ten years, with a newly concluded Free Trade Agreement expected to significantly enhance commercial ties between the two countries, according to Indian credit rating agency ICRA.
Between financial years 2014–15 and 2023–24, merchandise trade between India and the UK recorded modest growth at an annual average of 1 percent, ICRA reported. While Indian imports from the UK rose at a compound annual growth rate of 6 percent, exports grew at a slower pace of 4 percent. As a result, the trade surplus increased only slightly—from USD 4.3 billion in 2014–15 to USD 4.5 billion in 2023–24.
The report highlighted that the United Kingdom’s share in India’s total merchandise trade has remained relatively steady, with British goods accounting for around 1 percent of India’s imports and 3 percent of its exports throughout the decade.
Tariff Reductions to Drive Growth
The recently signed India-UK Free Trade Agreement is expected to serve as a catalyst for stronger bilateral commerce. According to ICRA, 99 percent of Indian exports to the UK will be eligible for zero tariffs under the agreement, while 90 percent of UK-origin goods imported into India will benefit from reduced or no tariffs.
“Tariff concessions on imports and exports are expected to improve the bilateral trade between the countries,” ICRA stated.
The UK is a significant market for Indian exports across at least 13 major product categories, including precious metals, automobiles, pharmaceuticals, textiles, alcoholic beverages, and cosmetics. With the new trade framework, ICRA expects these sectors to grow further, while also enabling new categories to gain from improved cost competitiveness in the UK market.
Services and Investment Expected to Benefit
In addition to goods, the Free Trade Agreement also covers services trade, an area where India is expected to see notable gains. The UK’s commitments under the deal include sectors such as information technology and information technology-enabled services (IT/ITeS), financial and professional services, business process outsourcing, and education.
India and the UK have longstanding investment ties, with the UK contributing significantly to India’s inward foreign direct investment (FDI), foreign portfolio investments (FPI), and remittance inflows. The agreement includes provisions to enhance professional mobility, including an exemption for Indian workers from UK social security contributions for up to three years. This, ICRA believes, may further support India’s remittance volumes.
Corporate Presence and Bilateral Opportunities
Indian companies maintain a strong presence in the UK, and vice versa, across a range of industries. ICRA noted that the Free Trade Agreement is expected to deliver "considerable benefits" to corporate entities operating in each other’s markets, both through direct trade advantages and improved investment conditions.
The agreement, under negotiation for several years, forms part of India’s broader strategy to expand its global trade partnerships and integrate more deeply into key economic corridors.
Context: A Cautious Decade of Trade
Despite the potential of both economies, growth in bilateral merchandise trade between India and the UK has remained subdued. Political transitions in the UK, including Brexit and subsequent trade realignment, as well as India’s cautious stance on certain trade deals in the past, contributed to the slow pace of progress.
The current agreement, if effectively implemented, marks a shift toward deeper economic cooperation. It follows similar trade efforts by India with other major economies including Australia and the United Arab Emirates, signalling an outward-looking trade policy aimed at export-led growth.
According to ICRA, the Free Trade Agreement with the UK could be a turning point in accelerating trade volumes, services engagement, and investment between the two countries.
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