The recently signed India–UK Free Trade Agreement, concluded on 24 July 2025, represents a milestone in trade relations. While the deal promises to strengthen ties, boost exports, and create more open markets, it also poses significant fiscal implications—especially for customs revenue. In its first year, India is projected to lose ₹4,060 crore, with projections rising to ₹6,345 crore by year ten, according to estimates by the Global Trade Research Initiative (GTRI).
This article explores the drivers behind the revenue estimates, the phased tariff reductions, broader economic implications, and the trade‑off between richer market access and fiscal risk.
Summary Table: India‑UK Free Trade Agreement
| Aspect | Details |
|---|---|
| Customs Revenue Loss (Year 1) | ₹4,060 crore (India) |
| Customs Revenue Loss (Year 10) | ₹6,345 crore (approx £574 million) |
| Immediate Duty Elimination | 64% of UK imports to India become duty‑free |
| Full Tariff Coverage | 85% of UK tariff lines phased out over time |
| UK Revenue Loss (Year 1) | ₹3,884 crore (approx £375 million) |
| India’s Imports from UK | USD 8.6 billion in FY 2024‑25 |
| UK’s Imports from India | USD 14.5 billion in FY 2024‑25 |
| FTA Signed Date | 24 July 2025 |
| Ratification | Pending UK Parliamentary approval; implementation by mid‑2026 |
| Official Reference | [RBI] For customs procedures and GTRI estimate via news outlets |
Customs Revenue Impact: Year-by-Year Outlook
Year 1: Immediate Revenue Shock
As per the GTRI, India will forgo approximately ₹4,060 crore in customs duties in the inaugural year of the FTA. This loss is largely attributed to the immediate duty removal on 64% of UK import value, including industrial equipment, electrical machinery, liquor, and consumer goods. The estimated weighted average duty was around 9.2% across those categories .
Year 10: Deepening Fiscal Exposure
By the tenth year, tariff elimination on 85% of UK tariff lines is expected, widening the annual customs revenue loss to around ₹6,345 crore, equivalent to roughly £574 million, based on FY 2025 trade volumes.
Trade and Tariff Framework Under the FTA
Import Duty Commitments by India
- 64% of UK import value becomes duty‑free immediately
- Duties on an additional 21% of UK tariff lines are reduced over the staging period
- Only high‑tariff agricultural items such as whisky and gin remain excluded initially
- Overall, 85% of tariff lines eventually see eliminated duties, with another 5% subject to reduced duties, leaving only a minimal residual duty on select items .
UK Commitments on Indian Exports
- 99% of Indian exports to the UK will face zero duty
- UK foregoes about £375 million (₹3,884 crore) in customs revenue in year one, rising with greater trade volumes.
Objectives and Economic Gains
Trade Expansion and Growth
The FTA aims to boost bilateral trade from current levels towards US $120 billion by 2030 and contribute £25.5 billion (approx US $34.5 billion) to annual trade by 2040.
It is expected to raise UK GDP by about £4.8 billion annually (0.13%) by 2040 and raise real wages by £2.2 billion per year. Indian GDP growth around 0.06% is also projected over time.
Sectoral Opportunities
- Indian textile, gems, pharmaceuticals, processed foods and chemicals gain preferential duty access
- UK exporters benefit in whiskey, automotive, cosmetics, medical devices, and beverages with steep duty cuts .
- MSME clusters in India, such as Tiruppur, Surat, Ludhiana, and Moradabad, can benefit from easier access and lower compliance costs.
- Mutual recognition of professional qualifications, visa concessions, and social security exemptions support workforce mobility and services trade.
Fiscal Risks and Government Considerations
Short-term Budget Pressures
India’s customs revenue projection for FY 2026 had included modest growth (~2.1%). A ₹4,000 crore shortfall may require compensatory fiscal measures or revenue reform strategies.
Long-term Trade-offs
The loss magnifies over time, and as trade volumes increase, the absolute revenue gap may widen. If not offset by higher import volume or alternative revenue measures, this can put pressure on budget planning.
Strategic Safeguards
Analysts advocate for mechanisms such as selective safeguard duties, sector‑specific protection, or gradual phasing to mitigate fiscal risk, especially for sensitive sectors like automotive and agriculture.
Implementation Status and Timeline
- The FTA was signed in principle on 6 May 2025, and finalized on 24 July 2025, during Prime Minister Modi’s visit to the UK.
- It still requires ratification by both the UK and Indian Parliaments, with full enforcement expected by mid‑2026.
- Regulatory alignment, Rules of Origin protocols, and customs code integration will follow, taking several months to operationalize.
Balancing Trade Benefits and Fiscal Cost
Trade Gains vs. Duty Loss
While trade liberalisation offers export-driven job growth, MSME access, and consumer benefits, India’s government must prepare for short- to medium-term revenue losses, and manage sectoral disruption.
Broader Economic Rationalisation
- Lower tariffs may encourage greater domestic competitiveness
- Market access combined with regulatory easing, customs simplification, and 48-hour clearance commitments can offset some revenue effects through trade volume growth.
- Duty cuts are concentrated on manufactured intermediate goods and industrial imports; agricultural safeguards were maintained.
FAQs: Frequently Asked Questions
Q. What is the estimated customs revenue loss for India under the India‑UK FTA?
A. India is projected to lose ₹4,060 crore in year one and ₹6,345 crore annually by year ten due to tariff eliminations.
Q. What percentage of imports will see tariff removal?
A. India will eliminate duties on 64% of UK imports immediately, increasing to 85% of tariff lines over time, with duties reduced on another 5% of lines .
Q. How much revenue will the UK lose?
A. The UK is estimated to lose £375 million (₹3,884 crore) in customs duties in the first year as part of its tariff commitments to Indian exports.
Q. When will the FTA come into force?
A. The deal was signed on 24 July 2025 and requires parliamentary ratification. Full implementation is expected by mid-2026.
Q. What are the trade growth targets?
A. Bilateral trade is expected to reach US$120 billion by 2030, with potential annual growth of £25.5 billion by 2040.
Q. Which sectors benefit most from the deal?
A. Key sectors include textiles, apparel, gems, leather, pharma, and processed foods in India, and whisky, cars, cosmetics, and medical devices for UK exporters.
Conclusion
The India–UK Free Trade Agreement is a bold step towards deepening bilateral ties and enabling long‑term trade expansion. India foregoes substantial customs revenue—estimated at ₹4,060 crore in year one and rising to ₹6,345 crore by year ten—but gains access to new markets, trade volume growth, and sectoral competitiveness.
Careful fiscal planning, targeted safeguards, and strategies to stimulate import growth may help offset near‑term losses. As the agreement moves toward ratification and implementation, both sides must ensure that the promise of open trade does not overshadow fiscal prudence.
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