UK-India FTA Opens US$ 38 Billion Procurement Market

The UK government has been vocal in its enthusiasm, portraying the FTA as a "landmark deal" set to unlock unprecedented opportunities for British businesses.

Their statements highlight that UK firms will, for the first time, gain the ability to directly compete for Indian government contracts across crucial sectors such as transport, healthcare, construction, and green energy. This access, they argue, will empower UK companies to expand their operations, foster innovation, and generate high-quality jobs within the UK.

Undermining Make In India?

A key "win" for the UK, according to their assessment, is the preferential status secured under India’s "Make in India" programme. The agreement reportedly stipulates that products and services with at least 20 per cent UK content will be classified as "Class Two" local suppliers, a designation previously exclusive to Indian firms.

The UK asserts that this will level the playing field and provide a significant advantage over other international competitors. Furthermore, access to India's online procurement portal is being touted as a crucial tool for UK firms to identify and pursue these new opportunities.

However, this optimistic outlook is meeting with significant scepticism and apprehension in India. Professor Arpita Mukherjee of ICRIER injects a note of caution, emphasising the underlying complexities. "Government procurement is covered under the EU and the UK trade agreements. The access depends on many factors, including whether there is a value limit, and what the negative list is. Also, we have to see the agreement to understand if the government procurement covers both state and local government procurement, as well as that of the Centre.”

Her analysis underscores that simply opening the market doesn't guarantee success for UK firms and raises critical questions about the actual scope and limitations of this access.

Mukherjee also points to existing intricacies of India's public procurement landscape, including state-level controls and potential discriminatory practices in specific sectors like alcohol.

"In India, alcohol, in many cases, is under government procurement — the state controls the distribution, and they can impose discriminatory policies... We have to read the government procurement chapter to see if UK scotch whisky will now be allowed. We have to link the chapters.” This suggests that sector-specific regulations within India could still present considerable hurdles for UK businesses.

The Counter View

A significant concern raised by Mukherjee revolves around the price sensitivity of Indian government tenders. “For example, if the duty on medical devices is reduced and access is given to UK companies in healthcare under government procurement, what is likely to happen. They may still be higher priced and fail the financial bid. Our government procurement tenders are in favour of low prices. Generally, there is a value limit in procurement to protect MSMEs. Large procurements are opened up, but we have to see the agreement.”

This implies that even with preferential treatment, UK firms might struggle to compete with lower-priced domestic alternatives.

Noted trade expert Biswajit Dhar voices a more fundamental concern regarding the very principle of opening up public procurement to foreign entities. “This would put pressure on trade negotiators to grant concessions with other countries like the US and the EU, who have been demanding it. The domestic SME sector, which was limping back from the Covid-19 attack, now faces a daunting challenge.”

Dhar's warning highlights the potential systemic impact of this decision, potentially weakening India's bargaining position in future trade negotiations and posing a threat to the recovery of domestic MSMEs.

The concerns raised by Indian experts are amplified by the historical context of trade relations. The USTR's 2025 report on foreign trade barriers had previously accused the Indian government of employing protectionist measures to safeguard its medium and small industries, making it challenging for US exporters.

The report also pointed to the lack of a unified government procurement policy in India and the existing preferences for domestic MSMEs and state-owned enterprises.

MSMEs Unaffected

Anil Bhardwaj, Secretary General of FISME (Federation of Indian Micro and Small & Medium Enterprises), offers a degree of reassurance, stating, “For now, our understanding is that 25 per cent MSME reservation will remain unaffected.” This refers to India's existing Public Procurement Policy for MSMEs (2012), which mandates that central government bodies procure at least 25 per cent of their annual purchases from the MSE sector.

The critical question, however, is how the "Class Two" local supplier status for UK firms will interact with these existing MSME reservations and whether it will ultimately erode the intended benefits for Indian small businesses.

Ajay Srivastava of GTRI further emphasised these concerns, stating that opening India’s Government Procurement through the India-UK FTA risks MSMEs and the 'Make in India' initiative.

He highlighted that allowing UK firms with just 20 per cent UK content to be treated as 'Class 2 Local Suppliers' under India’s Make in India policy effectively extends preferential treatment designed for Indian firms to foreign suppliers.

Srivastava warned that this could crowd out Indian MSMEs, which heavily rely on protected access to government contracts, and dilute a key industrial policy tool used to promote domestic manufacturing, innovation, and jobs. He also pointed out the asymmetry of the deal, with Indian firms facing a much more restricted environment in the UK's procurement market.

While the UK government celebrates a perceived victory in gaining access to India's vast public procurement market, the reality on the ground appears far more complex. The interplay between the FTA's provisions, GoI's "Make in India" initiative, the existing MSME reservation policies, and the price-sensitive nature of Indian government tenders will ultimately determine the true extent of the benefits for British businesses.

For India, the critical question remains whether this opening will genuinely foster healthy competition and attract quality investment, or if it inadvertently undermines its domestic industries, particularly the vulnerable MSME sector, and sets a precedent for further concessions in future trade negotiations.

The US$ 38 billion prize may well come with a significant set of challenges and potential costs for both sides. The fine print of the Commerce Ministry's report on the FTA will be crucial in understanding the true implications of this landmark agreement.

(The writer is a well-known economic journalist and analyst. Views are personal)