India-UK FTA’s real potential lies in services trade expansion

India and the UK are leaders in the services sector. In India, services account for nearly 70% of the GDP, whereas in the UK, they account for more than 80%.

By Bidisha Bhattacharya

Following almost three years of discussions, India and the United Kingdom concluded a significant Free Trade Agreement (FTA) that is set to transform their economic ties. Announced together by Prime Ministers Narendra Modi and Keir Starmer, the agreement is celebrated as a commercial breakthrough with reduced tariffs on iconic products such as Scotch whisky and luxury cars. However, for this agreement to be remembered for more than just its symbolic gestures, it must be recognised as more than a simple tariff reduction deal. Its true potential lies in enhancing the services sector, enabling digital trade, and creating a new framework for the movement of skilled labour and the exchange of innovation.

India and the UK are leaders in the services sector. In India, services account for nearly 70% of the GDP, whereas in the UK, they account for more than 80%.

Both nations rank among the top ten global exporters of services, with strengths in information technology, fintech, professional services, education, and the creative industries. However, trade discussions have often been dominated by traditional industries such as textiles, alcohol, and automobiles, leaving the key drivers of modern economic growth underutilised.

This free trade agreement marks a major step forward in this regard. India will gradually reduce tariffs on 90% of British goods, including cutting whisky tariffs from 150% to 40% over a decade and lowering duties on luxury vehicles. In return, 99% of Indian exports, such as textiles, leather products, gemstones, and processed foods, will be allowed duty-free access to the UK. While this supports India's Make in India strategy and export diversification, the real breakthrough lies in the services sector.

One of the most notable achievements is the Social Security Agreement. For many years, Indian professionals working overseas have been burdened with dual social security payments, contributing to systems from which they might never receive benefits. The FTA relieves Indian professionals temporarily employed in the UK from this requirement for up to three years. This long-standing request from Indian businesses not only reduces expenses but also boosts the competitiveness of Indian companies in industries such as consulting, technology and finance.

Progress is being made, albeit cautiously, in the field of mobility. The agreement allows short-term business travel and includes specific provisions for Indian professionals in niche fields, such as chefs, yoga instructors, and creative artists. Although it does not extend to liberalising broader work visa policies or establishing mutual recognition of professional qualifications, it lays the groundwork for gradual alignment. The UK's agreements with Australia and New Zealand have been more accommodating in terms of youth mobility and professional equivalence; India should continue to advocate for similar treatment in future discussions.

The agreement gives significant attention to digital trade, an area not extensively covered in India’s earlier FTAs. The alignment between India’s Digital Personal Data Protection Act and the UK’s developing data adequacy framework offers a promising opportunity for collaboration on cross-border data exchange, fintech advancement, and AI regulation. As India expands its digital infrastructure with systems such as Aadhaar, UPI, DigiLocker, and CoWIN, the FTA facilitates strategic collaboration with UK technology companies, regulatory bodies, and standards organisations.

Importantly, the agreement establishes mechanisms for regulatory cooperation and frameworks for resolving disputes in digital trade, which are essential tools as technology continues to advance. For Indian startups and SMEs, particularly those in tier-two cities, these safeguards will mitigate risks and promote international growth.

Although often overlooked, the potential for expanding collaboration in the creative economy and cultural services is equally important. The UK is a global leader in design, media, publishing, and gaming, whereas India's digital content, animation, and entertainment sectors are experiencing rapid growth. The FTA promotes partnerships in these areas, which could serve as an unexpected catalyst for growth by facilitating joint intellectual property creation, co-productions, and reaching new international audiences.

Furthermore, the FTA presents opportunities in the realm of green services, a sector that may not dominate the headlines but is vital for growth that withstands climate challenges. The UK excels in green finance and ESG services, whereas India is advancing in clean energy consulting and climate-tech startups. A future chapter could establish a framework for collaboration in areas such as carbon accounting, sustainability-focused consulting, and digital solutions for climate adaptation.

Educational services stand to gain as well. Although the UK continues to be a favoured destination for Indian students, challenges such as work limitations after graduation and steep visa fees have caused some tension in the relationship. The FTA does not completely resolve these issues, but it offers opportunities to establish the mutual recognition of academic credits and qualifications. Additionally, it encourages UK educational institutions to expand their presence in India in line with the New Education Policy 2020 and supports the development of joint degree programmes.

Despite these advancements, several shortcomings remain. Professionals in India's legal, financial, and healthcare sectors encounter restricted access to the UK market, frequently because of regulatory obstacles. Similarly, startups and digital entrepreneurs could benefit from more flexible visa and residency policies that align with the fast-paced nature of the knowledge economy.

Nonetheless, the FTA signifies a strategic shift. For India, this represents a move towards solidifying its role in the global services value chain. For the UK, it is crucial to expand trade relationships in the post-Brexit landscape. The anticipated £25.5 billion increase in annual bilateral trade by 2040 is more than just economic hope; it serves as a blueprint contingent on both parties actively executing and refining the agreement.

On a broader scale, the India–UK FTA delivers a strong message amid growing protectionism and disrupted supply chains: democracies can craft trade that is rule-based, inclusive, and forward-looking. It redefines trade as not merely transactional but transformational.

Let this be remembered not just as the whisky-and-SUV agreement but as the inaugural FTA to prioritise services, digital exchanges, and skilled labour. This establishes the groundwork for a new era in the India–UK partnership, characterised not by nostalgia but by innovation and mutual prosperity.

(Bidisha Bhattacharya is Senior Research Consultant, Centre for Economy and Trade, Chintan Research Foundation.)

Views are personal and do not represent the stand of this publication.