All eyes are on the bilateral trade deals that India is currently negotiating or concluding with the UK, US, and the European Union (EU). The India-UK free trade agreement (FTA) – a major milestone in the two countries’ trade relations – was finalised early May this year, and is expected to be operational in FY 2026, subject to legal vetting. Now that more details are emerging about the deal, it is increasingly evident that one sector slated to receive a major push is the Indian textiles and apparel sector.
Credit rating agency ICRA has prepared a report that suggests significant growth for the textile industry – almost double in the next five or six years. Compared with the US and EU that accounted for 61 per cent of India’s trade in apparel and home textiles in 2024; trade growth between the UK and India had almost flat-lined at 7-8 per cent in the last five years. But, if, in accordance with the India-UK FTA, tariffs are to be eliminated on 99 per cent of Indian goods including textiles (from the 8-12 per cent duty levied by the UK on this segment until now), increments in trade will be apparent in the next five years.
This move removes a major trade barrier and puts Indian exporters on an equal footing with countries like Bangladesh, Turkey, Pakistan, Cambodia, and Vietnam, which already enjoy duty-free access to the UK under different trade arrangements. In 2024, China was the biggest apparel and home textiles exporter to the UK with a 25 per cent share, followed by Bangladesh (22 per cent share), Türkiye (8 per cent share) and Pakistan (6.8 per cent share). In fact, rising labour costs in Vietnam and political instability in Bangladesh are shifting global sourcing trends in India’s favour.
Currently, India and UK’s trade accounts for only two per cent of India’s total trade despite India being the 12th largest trading partner of the UK. In the apparel and home textiles segment, however, India is UK’s 5th largest partner. The UK’s share in the total Indian merchandise imports was 1 per cent for the past decade, whereas its share in the total Indian merchandise exports was 3 per cent for the past decade.
In 2024, apparel and home textiles imported by the UK from India stood at US$1.4 billion, representing a 6.6 per cent share of textiles imported by the UK. The trade surplus between the two countries had increased marginally to US$ 4.5 billion in 2023-24 from US$ 4.3 billion in 2014-15.
According to a report by Systematix Research, the FTA, which was finalised after more than three years of negotiations, is set to strengthen the export pipeline, improve margins, and drive scale for India’s existing and emerging textile exporters catering to the UK markets. The full impact would be felt by FY27, says the report.
The report also adds that the FTA will not only boost near-term gains, but also enhance India’s long-term credibility as a trusted trade partner owing to the country’s well-established production base, continued government support, strong demand visibility supported by normalisation of inventories at the global retailer level, and comparatively lower tariffs by the US on Indian goods compared to other competing nations. This could also serve as a model for future FTAs with other developed nations.
UK’s imports are significant for India in as many as 13 categories including precious and other metals, automobiles, pharmaceuticals, textiles, alcoholic beverages, and cosmetics. The ICRA believes that more categories – such as textiles, metals, agricultural products, electrical and electronic products, sports goods and leather – may be exempted from 99 per cent duty under the FTA, providing cost advantages to Indian consumers.
In the realm of services trade, India stands to gain from the UK’s commitments under the FTA in sectors such as IT/ITeS, financial services, professional services, other business services, and educational services.
Financially, the UK contributes significantly to India’s Foreign Direct Investment (FDI) equity inflows, Foreign Portfolio Investors – Assets Under Custody (FPI-AUC), and remittances.
“The FTA is expected to ease professional mobility and exempt Indian workers from social security payments for three years – this will further boost these remittances,” said ICRA.
There is also a notable presence of corporate entities in each other’s countries, and ICRA believes that the FTA is anticipated to bring considerable benefits to Indian corporates operating in the UK and vice versa.
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