The UK-India FTA shows the challenges of delivering measurable economic growth through trade deals

Sarah Hall explains the challenges of delivering measurable economic growth through trade deals and why they are not included in the OBR’s forecasting using the example of the UK-India FTA.

With the UK economy still struggling to deliver sustainable economic growth, the Chancellor Rachel Reeves is widely reported to be keen that the Office for Budget Responsibility (OBR) ‘scores’ trade deals in terms of the growth they deliver. Her hope in doing so is that if the OBR upgrades UK growth forecasts by including trade deals, she will be less likely to need to rely on tax rises as it would signal a likely decline in the UK’s budget deficit.

She is particularly keen that the UK’s recent free trade agreement (FTA) with India be included, alongside the UK-EU reset and the Economic Prosperity Deal with the US. However, the case of the UK-India FTA demonstrates that agreeing an FTA is not a panacea for economic stagnation, with its value only as good as the way it is implemented – and here there is much work still to be done.

But first, the positives. One of the most successful policy domains for the current government is the speed and scale in which is has delivered new trade agreements, and in this respect, the India deal, finalised in July 2025, is particularly impressive. It is the largest and most economically impactful bilateral trade agreement that the UK has finalised since Brexit. India is widely recognised as a formidable trading partner that still adopts protectionist approaches to many trade policies. Against this backdrop, it was not seen as likely that the UK would conclude an agreement with India, having launched negotiations in January 2022.

But, with both countries seeking to reduce their exposure to the US following the tariff policy introduced by the Trump Administration, the talks were given significant new momentum in 2025 and a deal was reached. The deal reduces tariffs on 90% of goods trade, notably on whisky, automotives and medical devices, with the aim of increasing bilateral trade. The deal has been widely welcomed by trade groups, particularly in the manufacturing sector. The government estimates that it will increase UK GDP by 0.13% or £4.8bn in the long run.

However, there are two significant obstacles to the anticipated economic impact being delivered: one around ensuring full implementation and utilisation, and the other concerning the coverage of the deal. These obstacles explain the OBR’s caution to date in including trade deals in its assessments of the UK’s fiscal position.

Beginning with implementation and utilisation, in order to deliver fully, businesses need to be able to take advantage of all aspects of the UK-India deal, and this is not always easy. For example, the automotive sector has been widely identified as one that stands to benefit from the agreement when it comes into force. The deal reduces tariffs from up to 110% to 10% in a phased way, ultimately including electric and hybrid vehicles. However, the rules of origin requirements which stipulate the proportion of different types of vehicle that need to be made and assembled in the UK are more stringent than in other similar FTAs agreed by the UK, particularly for non passenger car vehicles. How significant this turns out to be will only be known as businesses start to utilise the agreement.

Turning to coverage, this is the most significant limitation associated with the deal, because it does very little for services. The lack of services coverage is common in FTAs, but the UK-India deal does not go as far in the liberalisation of services trade as some other FTAs recently concluded by the UK. Given the high growth rates and size of the Indian market, alongside the dominance of services in the UK economy, this is a significant constraint on the economic benefits of the deal.

Put simply, the deal ‘locks in’ current market access for UK services into the Indian market. This includes supporting digital trade through, for example, recognising the validity of electronic contracts and e-signatures which can be used to reduce trade costs. It also makes commitments regarding the temporary movement of professionals to deliver services including business visitors and intra-corporate transferees. However, the ability to utilise these mobility clauses could be limited by the ways in which India will retain some licensing requirements, particularly in the IT sector.  And with regards to digital trade, there is no commitment on supporting cross border data flows and data localisation requirements which are as important in financial services in particular.

Yet even these limited boosts to services trade are far from guaranteed. Some important aspects of the services agreement are still subject to further negotiation, while other services provisions are not binding and rather general in nature. For example, the deal sets out a framework of the future mutual recognition of professional qualifications, but these are notoriously difficult to conclude, and any progress is likely to take a significant amount to time. Similarly, on innovation the deal establishes a framework for cooperation on issues such as R&D but this is not supported by binding commitments. As a result, professional bodies representing services, most notably legal services, have stated their disappointment with the deal.

Trade deals are hard to secure, particularly with India, and it is not surprising that the government wants to leverage the maximum benefit it can from the UK-India deal in the OBR’s upcoming Economic and Fiscal Outlook. But pleasing the OBR should not detract from the hard but important work needed to ensure that the full value of the UK-India trade deal, including in areas where binding commitments have not been forthcoming in services, is delivered. Focusing on the full implementation and utilisation of the UK-India trade deal should therefore be seen as an important practical step in delivering much needed growth to the UK economy.

By Professor Sarah Hall, Professor of Geography at the University of Cambridge.