The UK–India trade deal isn't really about tariffs. It's about 2040

Most British businesses will understandably focus on what the UK–India trade agreement means for this year's bottom line.

Yet the biggest opportunity created by this agreement is unlikely to appear in next quarter's accounts. It lies in establishing a lasting position in one of the world's fastest-growing major economies before competitors do.

The UK–India Free Trade Agreement, agreed in May 2025 and formally signed by Prime Ministers Keir Starmer and Narendra Modi, has entered into force. The Government estimates that this landmark deal could boost gross domestic product (GDP) in the United Kingdom by £4.8 billion in the long run and deliver around £400 million in tariff reductions for British exporters in its first year alone.

But the real question is not, "How much will we save this year?"

The real question is, "Where do we want our business to be in 2040?"

What are the business opportunities in India?

India is expected to become the world's third-largest economy within the next decade and home to hundreds of millions of middle-class consumers by 2040. As incomes rise, demand will continue to grow across sectors ranging from healthcare and technology to education and advanced manufacturing.

Evidence from previous waves of internationalisation indicates that businesses that establish themselves early in rapidly growing markets develop lasting advantages through brand recognition and trusted local partnerships. These advantages can prove difficult for later entrants to replicate.

Consider the Scotch whisky industry. The reduction in Indian duties is welcome news for Scottish producers. But the real prize is not the immediate saving - it is the opportunity to build brand loyalty among India's rapidly expanding middle-class while the market is still developing.

Consumer research consistently suggests that brand preferences established early can remain remarkably durable. A distillery that wins customers today may be establishing relationships that endure for decades.

The agreement goes beyond reducing tariffs. It also creates opportunities for deeper industrial collaboration, including battery supply chains, advanced manufacturing, and joint research and development.

Most trade agreements are judged by their immediate effect on exports. In practice, their longer-term impact often comes through investment decisions that never appear in trade statistics.

Research into multinational expansion and bilateral trade consistently shows that firms entering complex markets accumulate localised operational knowledge over time, creating capabilities that competitors find difficult to replicate. These intangible assets rarely appear in conventional measures of international trade, yet they often determine long-term competitive advantage.

Decades of research into foreign direct investment suggest that companies frequently delay entering complex economies because of short-term uncertainty, only to discover that competitors have already established customer relationships, distribution networks, and local knowledge.

The real opportunity cost is therefore not the tariff firms continue to pay while they deliberate, but the market position they may never recover once competitors have moved first.

Many British businesses have traditionally viewed India as a challenging market because of its regulatory complexity, diverse state-level economies, and the importance of building trusted local relationships. Yet around 7,500 UK small and medium-sized enterprises already export to India, demonstrating that the market is not beyond the reach of ambitious firms.

Companies are often held back in India not by tariffs, but by underestimating the time and investment needed to build trusted local relationships.

India is not China

India’s development path differs significantly from China's rapid manufacturing-led transformation in the 1980s and 1990s. Success in India relies heavily on navigating domestic regulatory environments and building deep, trusted local relationships. Rather than attempting to replicate strategies that worked elsewhere, businesses entering India need to recognise that success depends on patient investment, local partnerships, and an understanding of India's diverse regional markets.

The UK begins from a position of considerable strength. Long-standing educational, legal, commercial, and cultural links with India provide a strong foundation for deeper economic cooperation. Those relationships should not be taken for granted, but neither should they be underestimated.

Looking beyond 2026

The true significance of this agreement is unlikely to be measured by next year's export figures alone. While the gains may be substantial, they are also likely to be incremental. Many businesses taking advantage of new opportunities will start small, and seek to deepen relations over time.

Ultimately, the success of this deal will be measured over the next decade or two by whether British businesses use this opening to establish lasting positions in one of the world's fastest-growing major economies.

History rarely remembers trade agreements for the tariffs they reduced. It remembers them for the markets they opened and the companies that recognised the opportunity first.

Further reading:

The power of heritage: Why China chooses Scotch whisky

Trump wants more trade tariffs - what would that achieve?

How to improve UK productivity

What leaders need to know about finance to drive real business growth

Nigel Driffield is Professor of International Business and Deputy Pro Vice Chancellor for Regional Engagement. He is also Midlands Lead for The Productivity Institute and teaches on the Undergraduate programmes.

Learn to lead your business through turbulent times with the executive education programme The Strategic Mindset of Leadership at WBS London at The Shard.

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