May 12, 2025 | Global Equity
India’s Power Play
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So far in 2025, markets have had plenty to absorb: the Trump administration’s tariffs, Germany’s latest investment commitments, the implications of the DeepSeek moment, and escalating military conflicts (now including one on the India-Pakistan border). Amid all of this, much could have been overlooked—most notably, the trade agreement between India and the United Kingdom announced on May 6.
Finalized after three years of negotiations, it is the most significant bilateral trade deal the United Kingdom has secured since leaving the European Union (EU).
The agreement aims to eliminate tariffs on 99% of Indian exports to the United Kingdom and reduce tariffs on 90% of U.K. goods entering India, with most becoming tariff-free within a decade. Notably, tariffs on British automobiles entering India will fall from 100% to 10%, and tariffs on whiskey entering India will fall from 150% to 75% now and 40% over the next 10 years.
The United Kingdom estimates that these tariff reductions will increase trade between the two countries by $34 billion by 2040. That’s significantly higher than the $23 billion of trade in goods between the two countries in 2024. (For reference, trade in goods between India and the United States was around $125 billion in 2024.) The United Kingdom is 16th among India’s trade partners in terms of size, so there is a lot of room for improvement.
India is likely to benefit the most from the trade agreement.
Clearly, in isolation this deal is not going to have a particularly large impact on each country’s economy. But there are interesting insights to glean.
First, while both countries should benefit from the reduction in trade barriers, India is likely to benefit the most from this agreement. While the Double Contribution Convention will apply to both nations, Indian companies will particularly benefit from the relief from paying National Insurance contributions for Indian employees working in the United Kingdom for up to three years—an advantage that likely strengthens the competitiveness of Indian IT services companies operating in the United Kingdom.
Additionally, while tariffs will be eliminated on the vast majority of Indian exports, U.K. companies in sectors such technology, pharmaceuticals, and legal services might feel disappointed by the lack of concessions they received.
India’s strong hand in these negotiations underscores its growing influence on the global stage. India is among the world’s largest marketplaces, and it has an unparalleled growth outlook, in our opinion. It also stands out as a major democracy that is relatively unaligned, giving it greater strategic flexibility at a time when geopolitical tensions are rising. This is the first of several ongoing trade negotiations for India, which are likely to be expanded to the European Union and the Gulf Cooperation Council. The U.K. trade agreement is likely to be used as a blueprint for what will be negotiated with the E.U.
India has some of the same ingredients for progress as China had in the early 1990s.
Of course, India-focused investors are weighing far more immediate concerns—particularly the trajectory of tensions with Pakistan and the progress of trade negotiations with the United States. While the outcomes are uncertain, it appears that India has meaningful leverage in both arenas. U.S. officials have already signaled that India is a top priority for a trade deal, and the recent U.K. agreement likely strengthens India’s hand. It is not a done deal, though. There will likely be sticking points, most notably over agricultural product tariffs or foreign direct investment in India’s retail sector.
Still, we remain optimistic about the long-term prospects for growth in India. India has some of the same ingredients for progress as China had in the early 1990s, including positive demographics, advantageous purchasing power parity (PPP) conversion rates, and a good starting point for economic growth. India will likely take a very different path to the one that China has taken over the past 35 years—for example, we see growth rates being slower and more volatile, and it will likely be challenging for India to build a manufacturing base similar to China’s. William Blair’s May 2024 podcast with Raghuram Rajan, professor of finance at the University of Chicago’s Booth School of Business—“India’s Wake-Up Call”— provides great insights into this topic.
India faces a more challenging global environment to grow its export base for manufactured goods than China did in 1992. Despite this, in our opinion, there is no other major nation that comes close to India in terms of the potential to garner a growing share of global trade and capital flows, or even global economic activity, in the years ahead. The trade deal with the United Kingdom is just another milestone on its journey toward reaching this potential.
Ian Smith, partner, is a portfolio manager on William Blair’s global equity team.