India-UK trade deal may dent competitiveness of China, Vietnam, Indonesia and Bangladesh in over $2 billion of exports

UK trade deal could bring over $2 billion of benefits for India

India’s trade agreement with the UK is set to make its exports more competitive against those from Southeast and South Asia in several key categories worth over $2 billion of trade, according to a Moneycontrol analysis.

Prime minister Narendra Modi on July 24 formally signed the agreement, which was finalised earlier this year.

"Indian textile, footwear seafood, engineering goods, gems & jewellery exports will get better access to the UK market. There will be new opportunities for India's agri and food processing products. FTA is especially beneficial for India's youth and farmers," said PM Modi at a joint press conference with UK prime ,inister Keir Starmer.

The deal is expected to reinvigorate bilateral economic ties, which have seen a decline over the years. The UK accounted for 2.4 percent of India’s total trade in 2009, but its share has dropped to 1.8 percent in 2024.

The two countries aim to double the bilateral trade from $56 billion by 2030.

A significant share of India’s trade gains is expected to come at China’s expense. Tariff concessions under the deal could make India more competitive in over $1 billion worth of exports, where China currently holds a lead.

Machinery parts represent one such category. In 2024, China exported $248.5 million worth of machinery goods to the UK, while India’s exports stood at $215.3 million—just 15 percent lower. With India’s global exports in machinery reaching $670 million, the new agreement could allow it to close the gap and expand its share.

India is also likely to gain in categories such as coffee, silver jewellery, and footwear. Coffee exports to the UK from India stood at $12.7 million in 2024, slightly ahead of China’s $11.1 million. In silver jewellery and footwear, India’s exports to the UK were around 30 percent of China’s, indicating room for growth.

However, while China’s losses are expected to be marginal—amounting to just 1 percent of its total exports to the UK—Southeast Asian economies could face sharper setbacks.

Indonesia, which entered into a strategic partnership with the UK in November 2023, may lose competitiveness in over 10 percent of its exports. This includes major categories such as sports footwear and toys like tricycles, scooters, and pedal cars.

Thailand may face competition in $200 million worth of goods, equivalent to 3.8 percent of its UK-bound exports, while Vietnam could see Indian competition in $346.6 million worth of its exports.

Pakistan, Bangladesh to take a hit

South Asian neighbours, particularly Pakistan and Bangladesh, are also likely to come under pressure. Bangladesh may lose competitiveness in 4.8 percent of its current UK exports. However, if categories with a 50 percent pricing or tariff gap with India are included, the exposure rises to 7.6 percent. For Pakistan, the estimated impact is 2.3 percent of current trade, but the figure could rise to 15 percent of its $2.14 billion UK exports if India captures market share in high-overlap sectors.

The key categories where Pakistan and Bangladesh are most vulnerable include apparel, footwear, and food products such as spices and fish. India’s productivity advantages and broader market access under the agreement could accelerate the shift in trade flows away from these economies.

A study conducted by the UK’s Department for Business and Trade had found that India could export items worth 9.8 billion pounds by 2040 owing to the FTA.