How India is dismantling its protectionism with UK FTA | Big picture, finer points

India may not like to admit it, but US President Donald Trump’s branding of it as the “tariff king” and his reciprocal tariff threats have forced its hands in more ways than one.

The latest FTA (free trade agreement) signed with the UK demonstrates that India is continuing to dismantle its tariff protections for domestic industries, first initiated in the budget of February 2025, and is quite willing to dismantle the protected turf of government procurement and affordable medicines for its citizens.

The FTA with the UK is likely to be the template for the bigger FTAs on the cards, with the US and the EU.

Three big areas where India has ceded ground to the UK, an economic power it overtook in 2022 to emerge as the fifth largest economy:

a) Massive tariff concessions

b) Letting UK firms participate in government procurement

c) Preference to voluntary licensing (as against compulsory lincensing) of patented drugs in public interest

Here is a closer look at these issues.

Tariffs, regulatory restrictions in trade

India not only lowers average tariff to 3 per cent on goods, from 15 per cent (including individual high tariffs of 150 per cent on whisky and up to 110 per cent on automobiles), covering 90 per cent of the goods imported from the UK, but also reduces tighter regulatory restrictions on import of services in many services sectors.

India has particularly been protecting its auto industry against competition, and this was the first let-up.

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The UK reduces tariffs for Indian goods to zero, effectively covering 99 per cent of items, some of which enjoyed a pre-existing zero tariff. Free trade means zero-tariff trade. However, the WTO provides for Special and Differential Treatment (SDT) provisions for developing countries like India and allows other members to treat them more favourably to help them develop.

India began erecting protective tariff walls quietly in 2014, which became an open policy with the “Atmanirbhar Bharat” mission of 2020 by reversing its trade liberalisation of 1991, which had served it well. Protectionism is a failed policy of the 1960s and 1970s.

Then came the non-tariff walls like the Quality Control Orders (QCCS) of 2023, followed by anti-dumping duties on imports from China, Vietnam and South Korea in 2023 and 2024.

Response to Trump threats

The dismantling of protectionist tariffs began directly in response to Trump’s threats and was aimed at American goods. It began with a series of cuts in import duties in the February 2025 budget, which included technologies, high-end motorcycles, cars and smartphone parts (to benefit the likes of Harley-Davidson, Tesla and Apple), industrial inputs and waste imports.

Ahead of Prime Minister Narendra Modi’s meeting with Trump in February 2025, India cut the duty on bourbon whiskey originating from the US from 150% to 50%. In March 2025, Finance Minister Nirmala Sitharaman declared eliminating 6 per cent equalization levy (Google tax) on digital advertisements, for tech giants like Google, Meta and Amazon.

The tariff cuts provided in the FTA with the UK are a continuation of this drift. Soon after the FTA was signed, Commerce Secretary Sunil Barthwal was quick to showcase the lowering of the tariff wall to declare that India wasn’t the “tariff king” anymore.

Make in India

India is allowing UK companies to participate in government procurement on an equal footing, which hitherto meant exclusively for domestic companies.

Though the UK companies will be treated as Class II local suppliers (Class I is restricted to Indian companies), even those UK companies with 20 per cent domestic content will qualify (80 per cent foreign input) and will be treated at par with Indian companies. They will have access across procurement platforms and participate in operations on which India spends 20 per cent of its GDP every year.

The UK government said in its impact assessment paper, released on the day the treaty was signed, that its companies will get “exclusive treatment under the Make in India policy”.

Not the first

Thus, India concedes ground in its Big Bang ‘Make in India’ mission of self-reliance and self-sufficiency as well. Indian companies will also benefit from access to the UK’s procurements by its National Health Service (NHS) and other agencies, the Commerce Secretary has said.

But how much more space India gets is not clear yet, considering that India already had such access to the UK’s procurement as a Class I local supplier before the treaty was signed.

This isn’t the first, though. The FTA with the UAE, signed in 2024, was the first such instance when non-Indian companies were given a role in government procurement. The UK, however, is a bigger economy and will have a significant role to play, as against the UAE.

Access to life-saving drugs

India first compromised on its strong position against Big Pharma in the Trade and Economic Partnership Agreement (TEPA) with EFTA countries (Switzerland, Iceland, Norway and Liechtenstein) in March 2024 when it agreed to dilute procedural protections meant to ensure essential and life-saving drugs are available at an affordable cost to Indian citizens.

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This was done by weakening pre-grant objections (PGO) processes to patents, diluting the norms for disclosure in the working of a patent, non-disclosure of whether a patent is imported or manufactured in India (to ensure easy access and availability) and shifting the burden of information collection on a patent from the applicant to Patents Controller (before deciding a patent). These were then incorporated in the Patents Rule of 2024, days later, making it India’s official policy.

No one is surprised that all these elements got into the FTA with the UK.

Compulsory licences

But the FTA went beyond that by compromising on a revolutionary change India had brought about in 2003 by incorporating “compulsory licences” in the Patents Act of 1970, allowing domestic companies to manufacture patented life-saving drugs in the public interest. It had led to the manufacturing of the cheap cancer drug Sorafenib in 2012, as an alternative to Bayer’s prohibitively costly Nexavar.

The WTO’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) allows countries to grant compulsory licences if a patented medicine fails to ensure availability and affordability. The FTA with the UK seeks to undermine this right by giving primacy to “voluntary licensing”.

It does so by recognising that “the preferable and optimal route to promote and ensure access to medicines is through voluntary mechanisms” and extends this voluntary licensing to technology transfer too. Further, “this may include measures to facilitate information flows, business partnerships, licensing and subcontracting deals, on a voluntary basis.”

Also read | Why India-UK FTA may push medicines out of ordinary Indians’ reach

Big Pharma is known to thrive on the high cost of medicines extracted through its patented drugs. Expecting it to relinquish its monopoly power and high profits voluntarily to others to manufacture or sell its patented medicines at an affordable cost or transfer of technology would be unwise.

Free and fair trade

Protectionism of the 1970s and 1980s hurt Indians and the Indian economy. It saddled them with shoddy goods and services at high cost. Trade liberalisation since 1991 had served India well until it was overturned in 2014.

Free and fair competition and a level playing field are important for fostering innovation, competition, efficiency, and expanding the economic pie. It boosted India’s exports and growth.

Former CEA Arvind Subramanian and his colleague Shoumitro Chatterjee wrote in 2020 how “real export growth of goods and services averaged close to 11 percent between 1992 and 2019, more than double the 4.5 percent rate recorded between 1952 and 1991. And overall GDP growth rates were 6.5 percent and 3.5 percent, respectively, in these two periods.”

Protective tariffs have disabled India’s export engine and impacted growth. The National Accounts Statistics data show (graph below) how exports have progressed since FY12.

Thus, dismantling the tariff wall and also the non-tariff wall of the QCCs is a good idea. In fact, India should not have reintroduced it in the first place, and should have reversed it as exports began to fall, without waiting for Trump to shake it up.

Nonetheless, now that it has begun on this journey, more of it is expected when the trade deals are signed with the US and EU. In the case of the US, Trump’s whimsical tariff threats will work. In the EU case, India had lost its case at the WTO in 2023 for imposing a 7.5-20 per cent tariff on ICT products while the WTO mandates zero tariff. The other complainants were Japan and Taiwan.

There are two other areas of concern that the FTA with the UK threw up and will have a bearing on other FTAs yet to happen: immigration and carbon tax.

Immigration offers minimal

On the long, contentious immigration issue, the UK offers very little. A UK government document on immigration says: “We have not created any new visa routes in this agreement...All visa routes that have been locked in through the agreement are only available for temporary stays, and none of the routes provide a path to permanent settlement.”

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There are two exceptions, though: “temporary entry shall be granted for up to a combined total of 1,800 per year of qualified, professional Indian traditional chefs, classical musicians, and yoga instructors,” and an exemption to Indian workers and their employers from social security contributions in the UK for up to three years (Annex 10A).

The issue will hover around when the trade deals are signed with the US and the EU.

Carbon threat looms

The threat of carbon tax (Carbon Border Adjustment Mechanism or CBAM), which the UK intends to implement from January 2026, has been completely bypassed in the FTA.

The question remains open-ended, and India maintains its freedom to ‘rebalance’, after having failed to address it during the negotiations. Leaving it out of the FTA only means indecisiveness, which will hit it down the road and may derail the big gains expected.

India’s indecisiveness will also cause a problem in its FTA with the EU, though not with the US, as Trump dismisses the climate crisis as a hoax. On its part, India announced plans to introduce its own carbon tax in 2023 as a retaliatory measure, but there has been no further update since.