The UK-India deal is expected to boost bilateral trade of more than $34 billion a year

Britain-India bilateral trade is expected to win an annual increase of over $34 billion over the long term following the free trade agreement, and the country’s leaders call it “historic” deal.

The FTA, which cuts mandatory obligations for goods such as textiles, alcohol and automobiles, was signed on Thursday in front of Indian Prime Minister Narendra Modi and his British counterpart, Kiel’s Stage.

The two sides concluded their trade agreement in May after three years of intense negotiations. This is characterized by troubling issues like visas, tariff reductions, and tax credits. The talks gained momentum and both governments accelerated to seal the deal as President Donald Trump’s tariff threat sent the world in turmoil.

The agreement with the world’s fifth and sixth largest economy is expected to increase by £25.5 billion a year by 2040. In 2024, trade in goods and services exceeded £40 billion.

He said the deal was smart, providing “great benefits to both our countries,” boosting wages, raising living standards and lowering prices to consumers.

The Indian Modi praised the deal as “a blueprint for our shared prosperity.” It highlights how Indian goods, including textiles, gems, produce and engineering items, can benefit from better access to the UK market.

As part of the transaction, 92% of goods exported to the UK will be removed or reduced completely by tariffs, while 99% of Indian goods shipped to the UK will be exempt from tariffs.

According to ANZ Bank economist Dhiraj Nim, the UK-India trade agreement marked a “strategic victory” in New Delhi’s trade diplomacy as it provided targeted benefits to Indian goods, which previously faced high tariff or regulatory barriers.

The UK government estimates that exports to India will reduce weighted average tariffs from 15% to 3%. The contract still needs to be ratified by the parliament of both countries, a process that could take several months.

In addition to lowering tariff charges for a wide range of products, the agreement exempts temporary workers in India and their employers from paying three years of social security contributions.

The UK’s Scotch and Gin tariffs will be halved from 150% to 75%, falling to another 40% over the next decade, but the brandy and rum tariffs will initially be reduced to 110% and ultimately to 75%.

Automotive industry tariffs will reduce duties to 10% within five years under the quota system from 110% of current levels.

According to estimates from Samilan Chakraborty, an economist at City Bank, prior to the contract, British goods attracted an average obligation of 14.6% in India, with the corresponding figure for Indian goods being 4.2%.

According to Chakraborty, this was one of the advanced economy and the first trade deals signed by India, with the UK accounting for 3% of India’s total commodity trade last year, with the majority followed by machinery and equipment, textiles and footwear.

Nim said the deal will also support Indian employment and industry growth, as it will boost Indian sectors such as textiles, gems and gems.

According to NIM, India’s trade surplus with the UK has grown significantly over the past two years, and could grow even more soon as market access improves. Over time, gradual easing of UK export barriers, particularly in automobiles, alcoholic beverages and machinery, could help narrow the gap.

“It’s hard to say exactly which direction the surplus will go,” Nim said, but the overall volume of trade is sure to rise.

The trade agreement could strengthen both countries’ positions in their respective ongoing negotiations with trading partners, including the United States, analysts said.

Alicia Garcia Herrero, chief economist at Natixis Bank, said that the UK-India deal provided both substantial “leverage and the US.”

London continues to work on implementing the trade agreement it agreed with the US in May, ahead of a potential meeting with Prioritizers and Trump during a private trip to Scotland on Friday.

The contract with India is projected to increase the UK’s economic output by another £4.8 billion ($6.5 billion) each year, lifting £2.85 trillion gross domestic product in 2024.

For Modi, the trade deal could serve as a springboard for India’s ongoing consultations with other developed countries and strengthen his push to position his country as a viable trading partner, experts said.

The UK contract “sets a tone for all Western countries… We are ready to trade on our terms and conditions. And it’s a loud voice and the great support provided in this agreement,” Sameep Shastri, vice-president of the BRICS Chamber of Commerce, told CNBC’s Inside India Friday.

New Delhi is competing to win a deal with Washington by August 1st.