India-EU FTA likely to ease structural frictions for IT services over time

The India-European Union Free Trade Agreement (FTA), signed on January 27 after nearly two decades of negotiations, is being assessed by the information technology services industry as a long-term structural positive that could gradually reduce operational bottlenecks in Europe, according to industry experts cited by Moneycontrol.

Rather than triggering an immediate increase in deal flow, the agreement is expected to improve regulatory predictability, talent mobility and service delivery conditions over time for Indian IT firms operating in the European market. The IT, technology and services sector, valued at $283 billion, sees the pact as supportive of sustained growth rather than a near-term demand catalyst.

Services form the largest component of India-EU trade, with bilateral services trade estimated at $83 billion in 2024. Europe is currently the second-largest revenue market for Indian IT companies, making regulatory stability in the region a key priority.

A long-standing challenge for Indian service providers in Europe has been regulatory fragmentation, with firms required to navigate different compliance frameworks, contracting norms and operational requirements across EU member states. Industry observers told Moneycontrol that the FTA introduces a more cohesive EU-level framework, which could lower non-tariff barriers and simplify cross-border service delivery, particularly for digitally delivered services.

Also read: Explained: How the India–EU trade deal will cut import duties on cars, wine and more

The agreement includes EU commitments to expand market access across 144 services subsectors, covering IT services, IT-enabled services, professional services and research and development. This is expected to provide Indian companies with clearer assurances on non-discriminatory treatment, digital trade rules and cross-border delivery mechanisms.

Analysts caution that the benefits are likely to materialise gradually. While the FTA may enhance confidence among European clients, especially for compliance-intensive and AI-driven engagements, it is unlikely to directly drive new outsourcing decisions in the near term.

Demand-side conditions in Europe add to the agreement’s relevance. Enterprises across the region continue to face high labour costs, ageing workforces and persistent shortages of digital and artificial intelligence skills. Government documentation accompanying the FTA highlights digitally delivered services and market access certainty, which could encourage greater offshoring of IT, digital and engineering work to India over time.

Talent mobility is another area where the agreement could reduce friction. The FTA establishes a structured framework for the temporary movement of business visitors, intra-corporate transferees, contractual service suppliers and independent professionals across IT and R&D services. It also outlines a pathway toward social security agreements with EU member states within five years.

Also read: India–EU free trade pact promises tariff gains, faces carbon and compliance tests

However, analysts quoted by Moneycontrol noted that while visa access and mobility processes may become more predictable, expectations of immediate job creation or a sharp rise in deal wins remain premature.

The Engineering Research and Development (ER&D) segment is expected to see a more pronounced impact. Europe’s manufacturing-heavy industries, including automotive, aerospace, industrial and defence, often require significant on-ground presence, and mobility constraints have historically limited large-scale ER&D engagements.

India’s ER&D sector emerged as the fastest-growing segment of the tech industry in FY2025, with revenues rising nearly 30 percent to $55.7 billion, overtaking business process management for the first time. Greater flexibility in deploying Indian talent and leveraging India-based delivery centres could strengthen Europe-focused ER&D work, industry executives told.

The agreement may also support deeper, longer-term partnerships between Indian service providers and European companies, shifting engagement models from transactional projects to sustained collaboration across design, testing, simulation and compliance.

In addition, improved access for European firms to the Indian market could drive increased localisation, including the expansion of global capability centres (GCCs) and deeper engagement with Indian IT and BPM providers.

Overall, while near-term revenue impact is expected to remain limited, industry participants told that the India-EU FTA strengthens Europe’s position as a scalable growth market for Indian technology services, with opportunities extending beyond traditional IT into ER&D, GCCs and higher-value digital work.