Analysis: IT sector key to liberalising EU-India trade

As the EU and India press on with talks about freeing up trade between the two regions, one organisation is already paving the way for closer co-operation in the technology space

In December, Brussels hosted the 11th round of negotiations between the Indian government and the European Commission (EC) on a free trade agreement (FTA) that would allow both regions to trade goods and services without being hindered by harsh tariffs or import duties.

However, once again, no firm commitments were made.

Neelie Kroes, EC vice president and European Commissioner of the Digital Agenda, believes an FTA would have a big impact on Europe's IT sector, and that 2012 will be a crucial year for furthering discussions. "The EU ICT industry employs more than 40,000 people in India and EU-India trade is growing strongly. In fact, the EU is India's number one export destination and the EU is India's number one foreign investor," said Kroes.

"This relationship would be greatly boosted by an EU-India free trade agreement, which would bring €9bn [£7.4bn] in total benefits, virtually evenly split between EU and India," she added.

Kroes is confident that this year will see real progress.

"I agreed with Indian Telecoms Minister Sibal in November that EU and India should cooperate more closely in R&D, internet security and regulation. There will be a high-level dialogue in February, with results expected in six months."

An FTA would allow European technology firms to more easily tap into the strong Indian economy, which has more than a billion consumers and a growth rate of between eight and 10 per cent. To improve the chances of settling an FTA with the Indian government, the EC has also decided to invest nearly €500,000 in a project called EU-India Fostering Cooperation in Computing Systems (EUINCOOP).

Set up in October, EUINCOOP is a consortium of European and Indian organisations that advises both governments on technology research and investment. Last week the organisation received a boost when IT standards body The Open Group and the Interactive Technology Software and Media Association both joined.

Ovum analyst Joe Dignan believes initiatives like EUINCOOP can play a vital role in establishing an FTA, because so many of the links between the EU and India relate to technology.

"EUINCOOP has to be seen in the context of the long-delayed and much sought-after FTA that the EU has been attempting to negotiate with India for a long time now," said Dignan.

"The bottom line is that Europe is very keen to get rid of India's highly complex system of permits and licences that makes it very difficult for foreign companies to operate in India. Out of 183 economies, India has been ranked 165th in terms of ease of doing business," he added.

"This project is integral to setting up an FTA. There are major tech companies in India, such as TCS and Infosys, which are hoping to expand in Europe and want a level playing field with European companies. Similarly, the EU is hoping to get access to the massive Indian market."

But what sort of recommendations could EUINCOOP make that would speed up and secure an FTA agreement?

Analysis: IT sector key to liberalising EU-India trade

As the EU and India press on with talks about freeing up trade between the two regions, one organisation is already paving the way for closer co-operation in the technology space

Partha Iyengar, an analyst for Gartner, argued that EUINCOOP must look to push unique research areas that cater to India's need to improve social conditions and Europe's desire to tap into business opportunities; that way both parties will be keen to sign the agreements.

"If EUINCOOP comes back and recommends that both the EU and India invest in cloud or social computing research then I don't think it's going to have much impact - there is enough of that going on in various other sectors," said Iyengar.

"There needs to be research into how India and the EU can better attack the rural segment in India from a business perspective. One of the biggest challenges in India is not being able to extend a business's supply chain from urban parts of India into rural areas with the same cost base, due to geographical limitations and a lack of infrastructure," he added.

"Research into how technology can help this issue would be beneficial. From India's perspective it addresses the need to improve social inequality and from an EU perspective it adds commercial value."

But while the aims of EUINCOOP and the FTA negotiators are in many ways laudable, some observers doubt whether a final agreement will deliver the benefits to the ICT sector that the likes of Kroes confidently anticipate. Clive Longbottom, an analyst for Quocirca, said Europe needs to be aware that it is not the only region wanting a piece of India's booming economy.

"India is unlikely to see this as a unique deal and it will just as happily sign similar deals with the US, China, Russia, Africa and South America," said Longbottom. "If this happens, then the EU gains little - India is the winner. All the EU has managed to do is keep up with everyone else. If the main thrust then becomes the investment of money from the EU into India in the hope of some return on that investment, it could all go very wrong for the EU."