India-UK Free Trade Deal Takes Effect: Massive Tariff Cuts and a Surge in Services Trade

The India‑UK Comprehensive Economic and Trade Agreement (CETA) came into force on Wednesday, slashing tariffs and unlocking a new era for services trade between the two economies.

Ground‑Breaking Tariff Reductions

■Britain eliminated 96.8% of tariffs instantly, covering 97.7% of trade by value.

■India removed 64.1% of tariffs outright and will phase out an additional 21% over time.

■Duties on textiles, leather, footwear, marine products, gems and processed foods are now completely abolished.

Services Sector Opens New Gateways

■Bilateral services trade reached $35.44 billion in 2024, with India running a $7.9 billion surplus.

■Access to finance, education, insurance and professional services expands, while the UK targets $7.5 billion in Indian engineering exports by 2029/30.

Trade Outlook and Projections

■India exported $13.44 billion of goods and imported $11.68 billion in FY 2025/26.

■Engineering exports rose 34.4% year‑on‑year, reaching $972.5 million in the first two months of 2026/27.

■A phased quota system will allow 37,000 fully built vehicles per year to enter India under preferential tariffs.

Potential Ripple Effects on Global Commerce

■The tariff cut could reshape Asia‑Europe supply chains and lift global trade volume by 1‑2%.

■Strengthened UK‑India ties may set a precedent for other regional deals, bolstering capital flows and investor confidence across markets.

Market participants anticipate that the sudden removal of tariffs and broadened services access will drive India‑UK trade volumes up by 15% by 2027. This surge could nudge the European Central Bank’s (ECB) inflation outlook slightly lower, as stronger export demand eases price pressures in the eurozone. Yet, the gradual liberalisation of India’s automotive and alcoholic‑beverage sectors may trigger short‑term volatility; investors should monitor risk premia and FX movements closely.