The India-EU Free Trade Agreement (FTA), signed on January 27 after nearly two decades of talks, is being viewed by the information technology (IT) services industry as a structural positive that could gradually ease long-standing hurdles around talent mobility, regulatory complexity, demand, and engineering-led work.
Described as the “mother of all deals”, the FTA is being seen by the $283-billion IT, tech and services industry as a medium-term structural positive rather than an immediate demand trigger.
The pact creates a more predictable operating environment for services trade between two large economies. Services already form the dominant and fastest-growing component of India-EU trade, with bilateral services trade estimated at $83 billion in 2024.
Europe ranks as the second-largest revenue market for Indian IT companies.
A key constraint for Indian firms in Europe has historically been regulatory fragmentation, with companies forced to wade through country-specific rules, contracting norms and compliance regimes.
The FTA provides a more integrated, EU-level framework for service delivery, reducing non-tariff barriers, and also easing cross-border provision of services, particularly under digitally delivered models.
This regulatory clarity could simplify contracting and delivery models over time, allowing firms to focus more on scaling demand and deepening client relationships rather than managing regulatory variance across markets, industry watchers say.
What does the FTA mean for the IT sector?
The EU has committed to broader and deeper market access across 144 services subsectors, including IT, IT-enabled services, professional services and R&D.
For Indian service providers, this translates into greater certainty of non-discriminatory treatment, clearer digital trade rules and more stable conditions for cross-border delivery.
“The EU-India trade agreement has the potential to reinforce Europe’s momentum by addressing one of its long-standing structural challenges: regulatory fragmentation,” Everest Group CEO Jimit Arora told Moneycontrol. “Greater consistency across EU markets could materially simplify service contracting and delivery models if implemented as intended.”
Regulatory fragmentation: Key Friction Point
A persistent challenge for Indian IT firms in Europe has been the need to operate through highly localised, country-by-country needs, wading through different regulatory and compliance regimes.
“This is particularly relevant as Indian IT firms look to diversify beyond the US amid increasing regulatory and protectionist pressures,” Arora added.
Europe has always been attractive but operationally complex. “The agreement should reduce this complexity, allowing providers to focus more on scaling demand and building deeper client relationships rather than navigating regulatory variance,” he said.
Demand tailwinds
Demand-side conditions in Europe further amplify the relevance of the agreement. European enterprises continue to face high labour costs, ageing workforces and persistent shortages in digital and AI skills.
A factsheet released by the government shortly after the FTA mentions the point of digitally delivered services and certainty of market access, which could encourage greater offshoring of IT, digital, and engineering work to India.
Nevertheless, one analyst argued that regulatory uncertainty, combined with more consistent contracting frameworks, is likely to improve medium-term demand visibility rather than trigger an immediate spike in deal wins.
“In the near term, it will not be the reason for giving more business,” said Gaurav Parab, a principal research analyst at consulting firm NelsonHall. “But it will strengthen the confidence of European clients in Indian firms to build compliant solutions, especially in the context of complex AI-based data frameworks.”
Talent mobility: easing Friction
Talent mobility remains a sensitive but important aspect of delivery in Europe.
The FTA establishes an assured framework for temporary entry and stay for business visitors, intra-corporate transferees, contractual service suppliers, and independent professionals across IT and R&D services.
It also provides a pathway toward social security agreements with EU member states within five years.
“Through a comprehensive mobility framework, India strengthens its position as a global hub for talent. The framework eases the movement of employees (and their spouses and dependents) of Indian Corporates established in the EU in all services sectors. For business entities aiming to provide services under a contract to EU clients, India can access 37 sub-sectors including IT, business, and professional services,” the factsheet read.
The deal will make visa access and travel easier, improving mobility of IT consultants to European shores, which has always had a sense of unpredictability involving overwhelming paperwork, Parab added. “Saying it will help in job creation is a stretch. Don’t expect deals to open up immediately,” he said.
ER&D a big beneficiary
The agreement’s impact is expected to be more pronounced in Engineering Research & Development (ER&D) services where Europe has a higher concentration of manufacturing-led clients across automotive, aerospace, industrial and defence sectors.
“Europe requires more people on the ground because of language, culture, and the distributed nature of manufacturing locations,” said Pareekh Jain, CEO and lead analyst at Pareekh Consulting and EIIRTrend, an engineering, IoT, Industry 4.0 and R&D platform. “People-to-people movement was restricting large-scale ER&D engagements.”
In 2025, India's ER&D sector overtook BPM in the tech industry for the first time. Revenue from the ER&D sector, which focus on designing, developing, and innovating products, software, and systems, grew by nearly 30 percent to $55.7 billion in FY2025, overtaking BPM.
The ER&D sector was the fastest-growing segment of India's tech industry, significantly outpacing BPM (11.7 percent), IT services (6.7 percent), software products (5.9 percent), and hardware (5.5 percent). Together, these five verticals make up India's $283 billion tech industry.
Jain highlighted that Indian firms were often forced to rely on nearshore centres in Eastern Europe, which have been difficult to scale due to ageing populations and local skill shortages.
“That flexibility to use Indian labour and Indian offices more effectively will help ER&D significantly,” he said, adding Europe already accounts for a higher revenue share than the US for many engineering-led Indian firms.
In recent quarters, while the traditional IT companies have posted low single-digit numbers, the ER&D pack has consistently outperformed, although on a low base.
Long-term partnerships
For companies with an established European presence, the FTA is expected to support a shift in engagement models.
“With stronger regulatory alignment and simplified cross-border collaboration, Indian ER&D teams can work far more seamlessly with European product companies across design, simulation, testing, and compliance,” said Akshay Chhabra, CMD of 1Point1 Solutions.
This marks a shift from transactional, project-led execution to long-term, innovation-driven engineering partnerships.
Reverse flow: GCCs & localisation
The agreement is also expected to stimulate a reverse flow of investment.
Improved market access for European firms into India is likely to drive greater localisation, including expansion of global capability centres (GCCs) and deeper engagement with Indian IT and BPM providers.
“This FTA is a new operating system for India-EU relations,” said Rishi Agrawal, chief executive and co-founder of TeamLease Regtech. “It removes the two biggest friction points that capped tech exports for years by codifying trust through clear rules on data flows and talent mobility.”
As European organisations deepen delivery footprints in India, the focus is expected to move beyond offshore hiring. “The evolution is toward building resilient GCCs with stronger governance, compliance, and operating rigour,” said Sachin Alug, chief executive of NLB Services, adding this would sustain demand across compliance, ESG, data protection, and engineering delivery.
While the IT services industry remains cautious on near-term revenue upside, the FTA is being viewed as constructive, which strengthens Europe’s position as a scalable growth market for Indian technology services, broadening opportunities beyond traditional IT into ER&D, GCCs, and higher-value digital work.
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