Challenges Facing Indian IT Firms in the Age of Automation

As the global tech industry moves towards automation, AI integration, and affordable cloud services, Indian IT firms are finding it difficult to keep up. The previously successful outsourcing model appears to be losing its relevance. Clients are increasingly seeking more than just cost-effective solutions; they desire agility, innovation, and comprehensive digital transformation. Coupled with reduced deal sizes, slow decision-making, and geopolitical challenges, the sector is currently facing several significant hurdles.

Sridhar Vembu’s Call for Change

Amid these challenges, Chief Scientist at Zoho Corporation, Sridhar Vembu, provided a critical perspective on the situation. In a social media post on X (previously known as Twitter), Vembu highlighted longstanding inefficiencies in the software industry, which have been supported by a prolonged asset bubble and have become normalized within the Indian IT sector.

Vembu expressed his viewpoint: “What we are witnessing is not merely a cyclical downturn nor solely a result of AI developments. Even in the absence of the uncertainties brought about by tariffs, difficulties were on the horizon.”

He pointed out the industry’s dependence on inflated systems, excessive hiring, and input-based billing, stating, “The broader software industry has been quite inefficient in both products and services. These inefficiencies have built up over decades amidst an extended asset bubble. Unfortunately, in India, we adapted to many of these inefficiencies, which have come to define our job landscape.”

Vembu further expressed concern about the diversion of talented professionals from essential industries. He remarked, “The IT sector absorbed talent that might have been directed towards manufacturing or infrastructure, for instance.”

A Call for a New Direction

Vembu advocated for a fundamental shift, stating, “We are only at the beginning of a long period of reflection. My belief is that the past 30 years should not serve as a reliable framework for the next 30 years. This is truly a pivotal moment for us. We must reassess our assumptions and embrace new ways of thinking.”

The post elicited immediate responses online. One user commented, “We sacrificed generations of talent in our role as a support system for global corporations, compromising India’s autonomy and leadership. The concept of jugaad represents inefficiency rather than a pathway to groundbreaking innovation and digital self-sufficiency.”

Vembu acknowledged this by saying, “I regret to concur with this viewpoint. It is essential for us to utilise our talent to address our own challenges.”

Many others aligned with this perspective. One comment stated, “The technology enterprises in India that grew into major companies through outsourcing never established a sustainable model. They failed to create products or invest sufficiently in research and development… it was beneficial while it lasted – many individuals amassed generational wealth.”

Another user added, “A significant portion of IT and tech employment in India stemmed from the influx of inexpensive US investment in exchange for services. Those roles generated minimal genuine value… an industry shakeout is imminent.”