Indian IT Firms and Their Struggle for Innovation

Indian IT firms are witnessing a significant struggle as the global technology environment transitions towards automation, AI integration, and cost-efficient cloud solutions. The traditional outsourcing model that once fuelled the industry is becoming increasingly obsolete. Clients are now looking for more than just cost savings; they expect agility, innovation, and comprehensive digital transformation. Alongside shrinking contract sizes, slow decision-making, and geopolitical challenges, the sector is facing some of its most difficult challenges to date.

Insights from Sridhar Vembu

In the midst of this upheaval, Sridhar Vembu, Chief Scientist of Zoho Corporation, provided a candid perspective. In a post on X (previously known as Twitter), Vembu highlighted the long-standing inefficiencies within the software industry, sustained by a prolonged asset bubble that has become typical in the Indian IT sector.

Vembu noted, “What we are experiencing is not merely a cyclical downturn nor solely due to AI developments. Even without the unpredictability from tariffs, challenges were imminent.” He reflected on the inefficiencies plaguing the broader software industry, underlining that both products and services have been considerably inefficient.

Critique of the Industry

Vembu expressed concern over the industry’s dependence on inflated systems, excessive hiring, and an input-based remuneration model. “These inefficiencies have built up over decades of an expanded asset bubble. Regrettably, we have acclimatised to many of these inefficiencies in India, creating careers that rely on them,” he stated.

He also expressed disappointment regarding the diversion of skilled professionals away from critical foundational sectors, stating, “The IT sector attracted talent that could have been directed towards manufacturing or infrastructure.” Vembu called for a significant reset in strategy, emphasising that the previous 30 years should not be used as a benchmark for the next three decades. “We truly stand at a turning point, requiring us to re-evaluate our assumptions and engage in innovative thinking,” he added.

Public Response

The post triggered immediate discussions online. One user remarked, “We have sacrificed generations of talent to serve as a back-office to global corporations, compromising India’s autonomy and leadership. Jugaad signifies inefficiency rather than a pathway to pioneering innovation and digital independence.”

Vembu acknowledged this view, stating, “Regrettably, I must concur. We need to channel our talent towards addressing our own challenges.”

Other individuals shared similar sentiments. One user commented, “The technology firms in India that grew into large entities through outsourcing never established a sustainable framework. They failed to innovate products or invest in research and development… it was advantageous while it lasted – many individuals amassed considerable wealth.” Another remarked, “Numerous IT and Tech positions in India emerged from the influx of cheap US capital in exchange for services. These roles generated little genuine value… a major industry shift is on the horizon.”