As the U.S. imposes a 25% tariff on Indian exports, Prime Minister Modi’s timely India–UK Free Trade Agreement offers a strategic shield. This ABC Live report explains how the FTA enables export redirection, safeguards MSMEs, and reinforces India’s global trade position through legal and policy tools.
New Delhi (ABC Live): In the ever-shifting terrain of global trade, decisive leadership and strategic timing shape a nation’s destiny.
Just as the United States hit India with a steep 25% tariff on August 1, 2025, Prime Minister Narendra Modi delivered a well-timed counterpunch: the India–UK Free Trade Agreement (FTA)—signed days earlier during his landmark state visit to London.
More than a bilateral deal, the FTA emerged as a geopolitical hedge, providing tariff-free access to the UK market for 99% of Indian exports. As the U.S. threatens India’s top export channels, the UK FTA—crafted under Modi’s guidance—positions India to not only withstand the shock but also emerge stronger through trade diversification and legal resilience.
This ABC Live report examines how the India–UK FTA can offset U.S. tariff impact through strategic export redirection, Rules of Origin compliance, MSME empowerment, and robust legal foundations.
What Prompted the Trade Shift?
On August 1, 2025, the U.S. imposed 25% reciprocal tariffs on Indian goods, disrupting exports worth over $42 billion. The most affected sectors include:
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Textiles & garments
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Pharmaceuticals
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Electronics
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Gems & jewellery
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Leather and auto components
In contrast, India’s UK FTA, signed just days earlier, grants preferential access across these very sectors, offering a clear path to minimise the economic fallout. The official UK Government impact assessment estimates that the agreement will add nearly £5.1 billion annually to India’s GDP by 2035.
Modi’s Role: Vision, Speed, and Tradecraft
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Diplomatic Agility: Modi fast-tracked the UK FTA negotiations, foreseeing trade headwinds from Washington.
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Strategic Focus: He secured full tariff eliminations on MSME-dominated sectors and included services, digital trade, and labour mobility.
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Domestic Linkage: Modi’s vision connects India’s global FTAs to domestic growth under Aatmanirbhar Bharat and Viksit Bharat@2047.
“This agreement is not just about economics—it is about India’s rightful place in the global supply chain,” Modi declared during his UK address.
? Data Analysis: Trade Losses vs Recovery via UK FTA
| Sector | U.S. Exports FY25 | UK Imports FY25 | UK FTA Tariff | Substitution Potential |
|---|---|---|---|---|
| Textiles & Apparel | $8.3B | $2.4B | 0% (was 12%) | $1.8B (21%) |
| Gems & Jewellery | $11.5B | $4.2B | 0% (was 5%) | $2.1B (18%) |
| Pharmaceuticals | $9.8B | $0.85B | Phased to 0% | $0.9B (9%) |
| Leather Goods | $3.1B | $0.9B | 0% (was 10%) | $0.7B (23%) |
| Auto Components | $2.7B | $0.6B | 0–2% | $0.5B (18%) |
Insight: Redirecting even 15–25% of U.S.-bound trade to the UK could recover $10–12 billion in exports by FY 2026.
How the India–UK FTA Can Offset U.S. Tariff Impact
1. Export Redirection
The UK FTA grants zero-duty access for most Indian goods, directly absorbing the blow from U.S. tariffs. Key industries can immediately reroute products to the UK without losing price competitiveness.
2. Value Addition & Reprocessing in the UK
Indian firms can establish final-stage processing units in the UK, allowing them to:
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Comply with Rules of Origin
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Export to the EU under the UK–EU TCA
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Explore legal re-export to the U.S. via UK-based supply chains
3. IT & Services Rerouting
The agreement liberalises cross-border services. Indian IT firms can now:
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Serve U.S. clients via UK subsidiaries
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Benefit from favourable labour mobility terms
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Avoid direct exposure to tariff jurisdictions
4. MSME Empowerment
Modi’s trade doctrine ensures MSMEs benefit via:
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FTA-skilling programs
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Export subsidies to UK markets
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FTA helpdesks through DGFT and EPCs
Rules of Origin (RoO): The Compliance Gateway
Under the UK FTA, goods must meet RoO criteria—ensuring that only genuinely Indian-origin goods enjoy tariff benefits.
Sectoral RoO Strategies
| Sector | RoO Strategy |
|---|---|
| Textiles | Weaving + tailoring in India |
| Jewellery | Final polishing or design in the UK |
| Pharmaceuticals | API in India + formulation in India or UK |
| Electronics | Local PCB + assembly in India |
- Exporters are encouraged to:
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Seek Advance Rulings
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Maintain RoO documentation
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Register as Authorised Economic Operators (AEOs)
A detailed WTO note on Rules of Origin explains why compliance with origin requirements is crucial to prevent misuse and trade retaliation.
Legal Case Law Supporting Trade Strategy
| Case | Key Ruling | Strategic Use |
|---|---|---|
| U.S. v. Haggar (1999) | Substantial transformation upheld | Basis for origin change recognition |
| Mead Corp. v. U.S. | Formal customs rulings favoured | Prefer advance over informal advice |
| WTO DS243 | India challenged the U.S. RoO rules | Advocates transparency and fairness |
| U.S. Tariff Lawsuits 2025 | Courts reviewing executive overreach | May impact long-term tariff legality |
Scenario Comparison: With vs Without UK FTA
| Scenario | Export Impact | MSME Job Impact | Forex Stability |
|---|---|---|---|
| Without the UK FTA | –$14.2B loss | 1.5M jobs at risk | Rupee weakens |
| With UK FTA + RoO Strategy | +$10.6B recovery | 1.2M jobs saved | Rupee stabilizes |
Policy Recommendations
- Launch UK Export Transition Task Force
- Scale RoO Training and Certification Programs
- Facilitate India–UK JVs in processing and warehousing
- Negotiate Diagonal Cumulation with the EU
- Track U.S. legal outcomes to shape future FTA shields
Conclusion: Trade Resilience Powered by Leadership
The India–UK FTA, designed to offset the impact of U.S. tariffs, reflects Prime Minister Modi’s strategic vision—blending diplomatic foresight, legal structure, and domestic reforms. It ensures India doesn’t just survive trade shocks, but uses them to chart new corridors of global opportunity.
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