Tariffs, AI, and Inefficiency Slam India’s IT Giants | Image Source: indianexpress.com
BENGALURU, India, 18 April 2025 – India’s computer industry, once the jewel of the country’s economic history, is under increasing pressure. Stress is not only cyclical or by-product of the disturbance of artificial intelligence. According to the founder of Zoho Sridhar Vembu, the recession has deeper and more systemic roots, highlighting inefficiencies in the software industry. Your comments come at a time when heavy IT trucks such as Infosys, TCS and Wipro are facing reduced profits, recruitment trends and political uncertainties arising from US tariffs and a volatile global trading environment.
“My thesis of operation: what we see is not only a cyclical regression and is not only related to AI. Even without price uncertainty, there were problems ahead,” posted Vembu on social media platform X. The software industry as a whole has been very ineffective for both products and services.
According to Vembu, these inefficiencies—fueled by decades of an overinflated tech bubble—have been mirrored and magnified in India’s export-driven IT model. His perspective casts a wide-angle lens on the issue, suggesting that current setbacks aren’t just the result of recent macroeconomic tremors, but long-festering vulnerabilities coming to a head.
What leads to a reduction in Indian IT?
Here we go. Indian exports of information technology, particularly to the United States, face economic pressures on several fronts. On the one hand, US President Donald Trump’s protectionist trade policies – more recently, a minimum tariff of 10% on all imports and a tariff of 245% on Chinese goods – have established world markets. On the other hand, Jérôme Powell, President of the Federal Reserve, warned against the inflationary consequences and the decline in business confidence due to these tariffs. This has resulted directly in a slowdown in decision-making, a reduction in discretionary spending and a delay in the launch of projects in the United States, which remains the largest Indian IT market.
Infosys reported a 11.7% decrease in net consolidated earnings for the quarter of March. Tata Consultancy Services (TCS) saw a slight but still worrying 1.6% of benefits. And while Wipro managed an increase in sequential benefits of 6.4%, its action decreased sharply due to the performance expectations they subyone. According to company statements and revenue requests, delays in client decisions and project funding have become common since March. TCS K Krithivasan CEO noted a sharp slowdown in discretionary investment flows, while Wipro CEO Srinivas Pallia openly expressed concern about the growing uncertainties. “
How do tariffs and trade policies contribute to the weakness of IT?
Commercial friction may seem tangential to services such as software development and advice, but it has powerful indirect effects. The World Trade Organization (WTO), in its April orientation, reviewed forecasts of growth in world trade in services up to 4% by 2025 and 4.1% by 2025, which is significantly lower than previously projected. The reason? The slowdown caused by the freight rate reduces demand for complementary services such as logistics, advice and technical support.
Powell, in a conversation with the former governor of RBI, Raghuram Rajan, at the Chicago Economic Club, stressed the uncertain terrain ahead: “These are very fundamental political changes… There is no modern example to guide us. Enterprises and households report high uncertainty in surveys
That uncertainty is leading to delayed investment, hiring freezes, and even potential layoffs—especially for Indian IT companies that are tightly integrated into global value chains.
Indian computer companies are working?
And the numbers say so. The demand for contrast submerged almost 20% in the first quarter of 2025 compared to the previous quarter. According to Economic Times data, active recruitment mandates increased from 80,000 in February to 55,000 in April. Recruitment experts argue that layoffs could be monitored, particularly in the services of the information centres and Global Capacity Centres (GCCs), which employ nearly 70 per cent of India’s technical workforce.
“There is a likelihood of layoffs in the Indian technology industry, particularly in IT and CCG services,” said Kamal Karanth, co-founder of Xpheno recruitment firm. Companies can stop replacing outgoing staff, which leads to what we call “organic attrition”: a quiet way to reduce the number of heads without official dismissal.
Wipro’s Pallia echoed this sentiment, noting that the company is hesitant to onboard new talent amid uncertain deployment prospects. TCS has also deferred wage hikes for now, citing macroeconomic unpredictability.
Is artificial intelligence part of the problem?
Partly. Although the impact assessment is often described as the main disruptor, its current role in deceleration is more about optimization than obsolescence. Automation eliminates repetitive tasks, reducing the need for large numbers of heads. But as Vembu pointed out, AI alone does not explain the sector’s performance. On the contrary, the account of AI can mask deeper problems, such as outdated product models, overloaded support functions and swollen consultation practices that have not evolved for decades.
In other words, AI is the accelerator, not the fire. Much of the software built over the last two decades is still ineffective, patch, and in many cases, too customized to the point of reducing performance. These layers of inefficiency are now colliding with a narrower, more prudent and more demanding global economy. And Indian IT companies, which have built their empire in volume-based service models, are forced to rethink everything, from prices and staff to delivery and design.
How do these trends affect India’s global position?
India was the world’s eighth largest exporter of commercial services in 2024, with exports of $374 million, reaching 4.3 per cent of global participation. Services increased at an annual rate of 11% last year, but this rate is now under threat. According to the WTO, services such as travel, logistics and professional advice are particularly vulnerable to economic barriers. Discretionary services, i.e. those that are not considered essential, are the first to be reduced in business budgets.
“Travel could be the first sector affected by economic uncertainty,” the WTO warned. “Consumers can give up travel and cancel room reservations abroad if the prices of accommodation or flight increase as these are discretionary expenses. For technology, this means fewer business meetings, delays in IT deployment and a general freeze on innovation budgets. The global slowdown crosses India’s technology corridors from Pune to Hyderabad, Bengaluru to Chennai.
What’s next for the Indian IT sector?
There are several possibilities on the table. In the short term, companies will likely continue to reduce their recruitment targets, delay salary increases and delay the launch of new projects. In the long term, the industry is faced with an option of reinventing or stagnating. Experts argue that the volume-based service model that made Indian IT giants rich in the year 2000 is no longer sustainable in a world of tariff uncertainty fuelled by AI.
Investments in product innovation, smarter automation and more inclined organizational structures may be needed to be globally competitive. This will also require cultural change from cost arbitrage to value delivery. It’s a high order, but some Indian companies are starting to run. Infosys, for example, has increased R & A budgets D for business tools that are groundless by IA, while TCS has begun to look to smaller and agile consultation units focused on addressing specific sectoral issues. These are encouraging signs, but the way forward.
As Powell said, “if the United States becomes a jurisdiction where structural risks are constantly higher, it would make us less attractive to invest.” The same logic could be applied to India’s export-based technology ecosystem if not adapted. Time to eat sugar. Indian IT has to deal not only with external shocks, such as geopolitical tariffs and friction, but also with its own legacy of inefficiency and inertia.
According to Zoho’s Vembu, the IT sector has been floating for too long in asset bubbles and inherited practices. We must recognize that some of these problems are of our own creation. Rates and IA are discussed more quickly than expected.
In other words, it’s a reckoning—but one that could be used as a reset. Whether the industry sees it as a threat or an opportunity will shape India’s tech future for the next decade.
