India and the United Kingdom have signed a wide-ranging free trade agreement aimed at deepening commercial ties and expanding market access, marking the most significant trade pact for both nations in recent years.

The deal was signed during Indian Prime Minister Narendra Modi’s visit to the UK, where he held high-level discussions with British Prime Minister Keir Starmer at his Chequers country retreat.

The agreement, which comes after nearly three years of back-and-forth negotiations, will cut tariffs on a broad range of goods  including whisky, cars, textiles, jewelry and seafood  and is expected to increase trade between the two countries by £25.5 billion ($34 billion) by the year 2040.

Described as the UK’s most significant trade achievement since exiting the European Union in 2020, the agreement provides reduced tariffs and new market opportunities for British businesses, although its overall economic effect remains modest compared to pre-Brexit EU trade levels.

Modi welcomed the development, calling it “a blueprint for our shared prosperity,” and noted that Indian products such as textiles, jewelry and seafood would enjoy improved access to the UK market.

“This is India’s biggest strategic partnership with an advanced economy,” officials noted, adding that the agreement could serve as a reference for future trade discussions with the European Union and other regions.

Both leaders hailed the agreement as historic.

Starmer said, “We've entered a new global era, and that is one that requires us to step up, not to stand aside... by building deeper partnerships and alliances.” The deal is now set to go through a ratification process expected to be completed within a year.

The trade pact includes significant changes to duties on whisky and automobiles.

Tariffs on Scotch whisky will be reduced from 150% to 75% immediately, and further lowered to 40% over the next ten years. Tariffs on other alcoholic beverages, such as brandy and rum, will start at 110% and fall to 75%.

On vehicle exports, India has committed to reducing tariffs to 10% within five years under a quota system that will gradually be loosened. In return, Indian electric and hybrid vehicle manufacturers will gain access to the British market under a similar system.

The agreement will allow 99% of Indian exports to the UK, including garments and other key goods, to enter with zero tariffs. British exporters, in turn, will see reductions on 90% of tariff lines, with the average rate dropping to 3% from 15%.

Despite the scope of the agreement, the overall impact on the UK economy is expected to be modest. Projections show an annual boost of £4.8 billion by 2040, a small fraction of the UK’s £2.6 trillion economy in 2024.

The Office for Budget Responsibility has projected that UK trade in general will remain 15% lower than it would have been if the country had remained in the EU.

Still, the trade pact is seen as a major diplomatic and economic win for both sides. “In an era of rising protectionism, today's announcement sends a powerful signal,” said Rain Newton-Smith, the chief executive of the Confederation of British Industry.

The Confederation of Indian Industry also praised the agreement, describing it as a “strong foundation for deeper market access.”

Beyond goods, the deal includes new arrangements for business cooperation and services. Temporary business visitors will benefit from easier access, and workers will no longer be required to pay into social security systems in both countries when on short-term assignments abroad.

British firms will also be able to tap into India’s public procurement opportunities in sectors like clean energy, while the agreement covers service areas such as insurance.

However, India did not secure an exemption from the UK's planned Carbon Border Adjustment Mechanism, which is expected to impose additional charges on emissions-heavy imports starting in 2027.

Modi’s UK visit also included a meeting with King Charles at the Sandringham Estate, following extended discussions with Starmer that lasted nearly three hours. In addition to the trade deal, the two countries agreed to broaden cooperation in areas such as climate, defence, and crime prevention.