Prime Minister Keir Starmer and Indian counterpart Narendra Modi touted the prospect for expanding a £42.6 billion ($57 billion) trading relationship on Tuesday while announcing the deal — the UK’s biggest such agreement since Brexit and India’s first with a European economy. Starmer accepted Modi’s invitation to visit India at the “earliest opportunity” to affirm the pact, which was the culmination of more than three years of talks under four British prime ministers.

Both Starmer and Modi are seeking to insulate themselves from Trump’s trade wars, even as they jockey for separate agreements with Washington to minimize the impact of his tariffs. Still, the agreement would likely only add about 0.1% to UK economic output in the long run, according to Bloomberg Economics calculations. 

“Compared with the big things like Trump taking a bazooka to the global trading system, and Brexit, this is tiny,” said Alan Winters, a trade expert and emeritus professor at the University of Sussex. “It reconfirms the notion that, while nice, deals with countries far away are not the issue. The real issues are trade with the European Union and the global system in the eyes of Donald Trump.”

For India, which eclipsed Britain as the world’s fifth-largest economy in 2021, the deal burnishes its credentials as an alternative investment destination to China. Britain has been eager to show it has options in the wake of its exit from the European Union and, more recently, Trump’s tariffs. More than 1.9 million people of Indian descent live in Britain, which ruled over the subcontinent until 1947. 

Starmer hailed the deal as a “very significant step” and said it would bring benefits to working people across the country. The agreement would “catalyse trade, investment, growth, job creation, and innovation in both our economies,” Modi said on X, adding that a convention on double pension contributions would come alongside the deal.

Mark Tucker, group chairman for for HSBC Holdings Plc, said in a statement that the pact had “huge future potential” for both countries. It would likely likely boost spirits makers Diageo and Pernod, according to analysis by Bloomberg Intelligence, which both get 12% of their revenue from India. 

The UK’s Department of Business and Trade UK said Indian consumers would gain cheaper access to British cosmetics, aerospace, lamb, medical devices, salmon, electrical machinery, soft drinks, chocolate and biscuits, it said. Britons, in turn could see lower prices on clothing, footwear and food products, it said. 

The UK said some 90% of tariff lines will be reduced for British exports to India, including 85% that will be fully tariff-free within a decade. Whisky and gin tariffs would be halved to 75% before reducing to 40% by the 10th year of the deal, while automotive industry tariffs will reduce to 10% — under a quota — from 100% over that period, it said. 

Meanwhile, India has won reductions on about 99% of tariff lines for goods it ships to the UK, according to a person with knowledge of the matter. The South Asian nation has also secured market access for services including information technology, and has agreed a mechanism with the UK that will allow it to seek recourse in case of exports impacted by Europe’s carbon-emission rules, the person said, asking not to be identified ahead of the formal announcement.

The deal is also the first major free trade pact signed by the Modi government in a decade and will act as a stepping stone for its ongoing negotiations with the European Union. An email to the Commerce Ministry wasn’t immediately answered outside of business hours in India. 

The UK’s main opposition Conservative Party immediately seized on an exemption from national insurance payments for Indian workers staying for less than three years, with their shadow business secretary, Andrew Griffith saying on X “Every time Labour negotiates, Britain loses,” and Shadow Justice Secretary Robert Jenrick saying on the same platform: “Starmer has hiked National Insurance on Brits while giving an exemption to Indian migrants. British workers come last in Starmer’s Britain.”

Business Secretary Jonathan Reynolds, however, said the tax break goes both ways and would ensure there was no double taxation on Britons temporarily working in India or vice versa. Moreover, he added that the UK was merely extending to India “arrangements we have with a whole range of existing partners.”

Reynolds also said the deal gives British companies access to Indian government procurement contracts — which he described as an “exciting opportunity” that positions the country well for the future.

The two countries still need to iron out legal texts, before submitting the pact through their respective domestic ratification processes. Reynolds said he expected to take about 12 months for the deal to take effect. 

Total trade in goods and services between the UK and India was £42.6 billion in 2024, according to data from the British government, making India the UK’s 11th largest trading partner. The UK said it expected the trade deal with India to boost bilateral trade by £25.5 billion a year over the long run.

The deal is a welcome boost for Starmer as he tries to show progress to a disenchanted electorate on his primary aim of lifting the UK’s anemic growth rate. It’s the first sealed under his government, which came to power 10 months ago, adding to earlier post-Brexit deals secured by the previous Conservative administration with nations including Australia and New Zealand, as well as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

Britain is also in talks for a deal with Trump’s administration and is seeking closer economic ties again with the European Union, its largest trading partner, following its divorce from the bloc at the end of 2020.

Negotiations on the UK-India deal were launched by Modi and the UK’s former Tory premier, Boris Johnson, in 2021 with an aim to conclude them by Diwali of 2022. However, several self-imposed deadlines were missed as the two sides failed to agree on key issues. 

The talks were put on hold last year due to national elections in both nations, and resumed early this year at a time when New Delhi is also racing to clinch a trade deal with the US by fall, seeking to avoid the brunt of Trump’s trade barriers. Asian nations, including South Korea, Japan and India, are leading the race in securing some sort of interim deal with the Trump administration to get a reprieve from his tariffs. 

Rain Newton-Smith, chief executive of the Confederation of British Industry, said the trade deal with India was a “beacon of hope amid the specter of protectionism.”