India and the United Kingdom are set to sign a free trade agreement (FTA) on Thursday, according to sources. The signing of the pact is expected to take place a day after Prime Minister Narendra Modi began his official visit to the UK. The deal, finalised about two months ago, will be signed by the trade ministers of both sides in the presence of their prime ministers. The development is set to be followed by the unveiling of “UK-India Vision 2035”, a special strategy for “reinvigorated partnership” between both sides, said the sources. 

The India-UK trade pact is set to benefit sectors such as textiles, pharmaceuticals, liquor, and automobiles and related components. 

For Indian consumers, the agreement will provide access to quality British products, including passenger vehicles, medical equipment, beauty items, and cold drinks.

As part of the pact, India is set to reduce the average duty of 15 per cent on British products to 3 per cent. 

Here are 10 things to know about the much-awaited India-UK trade deal: 

• The trade deal is carefully designed to benefit both countries, widely expected to aid employment and growth on both sides.
• The idea behind the deal is to eliminate or reduce import and export tariffs between the two nations.
• The deal–cleared by the PM Modi-chaired Union Cabinet on Tuesday–is called Comprehensive Economic and Trade Agreement (CEPA), and is set to make Indian products more competitive in the United Kingdom, and vice versa. 
• Both countries had announced the finalisation of the trade pact on May 6. However, the full text of the deal was not made public pending final legal review.
• Both nations desire to boost the trade between them to $120 billion by 2030. In 2024, this figure stood at about $43 billion, according to official estimates. 
• The deal will enable the elimination or reduction of tariffs on about 99 per cent of India’s exports to the UK.
• Here’s a list of sectors that are likely to be touched by the pact:
  • Textiles
  • Leather
  • Footwear
  • Sports goods
  • Toys
  • Marine products
  • Gems and jewellery
  • Engineering goods
  • Auto parts and engines
  • Organic chemicals 
• The FTA ensures comprehensive market access for goods–across all sectors–covering all of India’s export interests, and India will gain from tariff elimination on about 99 per cent of the tariff lines covering almost 100 per cent of the trade value offering huge opportunities for increase in the bilateral trade between India and the UK, according to a Commerce Ministry statement dated May 6. 
• In turn, India will reduce tariffs on 90 per cent of its imports from the UK in phases, with 64 per cent seeing an immediate cut.
• Among the immediate beneficiaries of the India-UK FTA will be the British food and drinks sector. Nearly 90 per cent of British exports in this category are Scotch whisky, a segment currently taxed at 150 per cent. Under the new agreement, tariffs on whisky and gin will initially drop to 75 per cent, and further to 40 per cent over the next 10 years.

Here are answers to a few frequently asked questions (FAQs) about FTAs:  

What is a trade tariff exactly? A tariff is a tax that applies to goods imported into a country. By nature, it makes foreign products more expensive in a country, promoting the utilisation of local produce and resources. Tariffs generate revenue for governments, but can also influence market prices and trade flows.

What is the use of an FTA? Why do countries sign them? An FTA enables two or more countries to reduce or eliminate trade barriers on select goods and services. These trade barriers include import duties, export restrictions, and quotas. Such an agreement aims to promote seamless cross-border trade and improve market access while enhancing economic cooperation on both sides.

What are the key advantages of FTAs? There are five main benefits that FTAs offer:

• Lower tariffs: Lower duties make goods cheaper for consumers and industries 
• More exports: Easier access to partner countries’ markets boosts exports 
• Better investment: Predictable trade rules encourage foreign investment 
• Strategic ties: Typically, FTAs deepen diplomatic and political relationships 
• Better competitiveness: Domestic firms innovate and scale up to compete globally

Are there any disadvantages of FTAs? In rare cases, FTAs can hurt domestic industries, especially if not competitive. 

Do all FTAs eliminate tariffs? No, that is not always true. Sensitive sectors–such as agriculture or defence–may still have protections.

How do FTAs benefit consumers? These agreements enable access to cheaper and more diverse goods and services with reduced duties and freer trade.

Do FTAs cover only goods? No Modern FTAs often include services too. Originally, they focused only on goods. 

Can countries exit or modify an FTA? Yes. Most such pacts have clauses allowing review, amendment, or even withdrawal with notice.