Indian IT’s Harsh Reality Check: Beyond AI, Tariffs, and Slowdown

Poonam Sharma

GG News Bureau  8th May -India’s proudest economic sector is facing one of its toughest moments. As stock prices tumble and job cuts loom large, many are quick to blame artificial intelligence (AI), U.S. trade policies, or global economic uncertainty. But the story runs deeper. Recent earnings from India’s top IT giants signal a reckoning for an industry long seen as the crown jewel of the nation’s economic rise.

Weak Earnings Point to Structural Crisis

Let’s start with the numbers:

• Tata Consultancy Services (TCS), India’s largest IT company, posted its slowest revenue growth in four years.
• Infosys reported a 12% decline in profits.
• Wipro recorded its weakest revenue outside the pandemic slump.

These aren’t isolated data points. Together, they reveal a systemic challenge brewing across the sector.

Hiring Freezes, Salary Cuts, and Delayed Promotions

The impact is already visible on the ground.

• Salary hikes are on hold.
• Promotions are delayed.
• Hiring, especially at entry level, has slowed to a crawl.

TCS has postponed salary revisions. Infosys is projecting just 0-3% growth for FY26. Wipro is delaying onboarding thousands of fresh graduates, leaving many in uncertainty.

For an industry once hailed as India’s employment engine—employing over 5 million people and contributing 7.5% to GDP—these are troubling signs. A prolonged slowdown could ripple through the broader economy.

Global Headwinds: AI, Tariffs, and Canceled Contracts

Globally, the tech landscape is shifting fast.
In the U.S.—India’s largest IT market—over $5.1 billion worth of IT contracts have been canceled or shelved in recent months. Corporate clients are pausing large digital transformation projects, waiting for economic and technological clarity.

Policy shifts from Washington add pressure. Former President Donald Trump’s tariffs on Chinese and foreign tech goods created trade uncertainty, discouraging American firms from outsourcing aggressively—including to India. While some hoped India might benefit from U.S.-China tensions, reality proved more complicated:
Clients are cautious, budgets are tighter, and regulatory scrutiny is rising.

At the same time, the global tech sector faces its own correction. In 2025 alone, over 23,000 tech jobs were lost globally in just the first few months. Layoffs at Google, Microsoft, and others highlight the growing role of AI and automation replacing human labor.

For Indian IT firms—historically built around large teams managing legacy systems—the pivot toward automation presents an existential challenge. Clients no longer want armies of coders maintaining old systems. They demand smarter, AI-driven solutions—a shift that strikes at the core of India’s traditional outsourcing model.

“It’s the Mirror”: Structural Weakness, Not a Passing Storm

Zoho founder Sridhar Vembu is one of the few leaders publicly calling out the deeper issues. According to him, this slowdown isn’t temporary—it’s structural.

“The Indian IT industry has been growing on the back of a bubble for many years,” Vembu warns. “We got too comfortable, focused too much inward, and delivered services that didn’t add much value.”

His critique goes further. He argues the IT boom diverted India’s brightest talent away from foundational sectors like manufacturing, infrastructure, and product innovation. Instead of building factories, roads, or groundbreaking products, a generation of engineers were absorbed into services that, while profitable, were fundamentally “code-for-hire” rather than creators of intellectual property.

“The real problem isn’t AI or America,” he says. “It’s the mirror.”His call isn’t for more cost-cutting or upskilling but for a complete redefinition of the industry’s purpose.

A Model Losing Relevance in an AI-Powered World

At its peak, Indian IT became synonymous with offshore outsourcing, BPO, and IT-enabled services, commanding global respect. But the success formula of the 2000s is becoming a liability in the 2030s.

Today’s global clients aren’t content with basic application support or maintenance. They want cloud-native platforms, AI-driven insights, cybersecurity solutions, and proprietary software.

Startups—both domestic and global—are disrupting traditional models, offering automation-led solutions with fewer people but faster, cheaper results. Large transformation projects are being delayed or canceled as clients reassess strategies in the face of AI disruption.

The existential worry: Is Indian IT losing relevance?
Without a pivot to higher-value services, product innovation, and intellectual property development, Indian IT risks becoming a commoditized back-office provider in an AI-powered world.

Reinvention or Decline: The Path Forward

What’s next? Leading firms are talking about efficiency, innovation, strategic workforce planning, and digital upskilling. But insiders admit: the scale of change required goes beyond slogans.

The industry must shift:
From services to solutions
From bodies to brains
From maintenance to making

This requires investing in R&D, fostering product innovation, and—most critically—a shift in mindset: from executing others’ ideas to originating them.

There’s no easy path. Margins will remain under pressure. Growth will be harder. The talent model needs an overhaul. And leadership needs vision and courage to take risks beyond the outsourcing playbook.

As the global tech cycle resets amid AI acceleration and geopolitical shifts, Indian IT stands at a crossroads. Blaming AI, tariffs, or temporary headwinds may be convenient. But as Vembu warns, “the mirror holds the tougher truth: the easy money years are over.”

For Indian IT to thrive in the next decade, it needs more than resilience.It needs reinvention.