India’s IT sector, once celebrated for transforming the nation’s global image from a land of snake charmers to a formidable IT powerhouse, now finds itself at a crossroads. While it has created hundreds of thousands of white-collar jobs and generated $160 billion in software exports in FY2024, the sector seems content with its current position, much like a laborer satisfied with daily wages, oblivious to the gold mine within reach.
Despite India’s abundant talent, opportunities, and expertise, the IT industry remains entrenched in outsourcing and human resources supply, while countries like the US, China, and even smaller nations surge ahead in deep tech. India’s IT giants appear content being the world’s back office, while true tech titans chase the future with world-class software products, AI breakthroughs, and deep-tech startups.
Several constraints hinder India’s IT sector:
Low Innovation: The industry primarily follows a “body shopping” model, measuring success by the number of low-cost engineers deployed rather than creating new intellectual property. Even though India captures 55% of the global outsourcing market, it has not produced software products on par with Google, Microsoft, or OpenAI. Major firms like TCS, Infosys, and Wipro have grown into billion-dollar enterprises, yet they remain service providers rather than technology innovators.
Lack of Long-Term Vision: Indian IT companies avoid risks, preferring low-margin outsourcing over high-risk, high-reward innovation. Companies like Infosys and TCS prioritize distributing cash reserves as dividends instead of investing in long-term R&D. While China builds low-cost AI models, Indian IT firms hesitate to invest significantly in AI, blockchain, or automation, despite holding billions in cash reserves.
AI Blind Spot: India lags in AI model development, with industry leaders agreeing with OpenAI CEO Sam Altman’s assertion that India couldn’t afford to build Large Language Models (LLMs) due to high costs. Yet, DeepSeek, an open-source model, demonstrates that training an AI model with unique datasets can cost under $7 million, far less than Western firms spend. Despite India’s vast data resources, Indian languages are under-represented in AI datasets, highlighting the need for India to build its own LLMs.
Global Capability Centres (GCCs): These are outsourcing businesses by another name. Multinational companies establish GCCs in India, bypassing Indian IT firms and cutting into their revenue. While GCCs hire Indian engineers directly, innovation and product development remain under foreign control, keeping India as a back-end hub.
Reliance on American Digital Firms: Unlike China, which developed its tech giants to compete with Western platforms, India welcomed global firms, leaving little room for homegrown competitors. India remains reliant on foreign technology instead of developing its own digital giants.
Low Data Centre Capacity: India’s data center capacity is just 1GW, forcing most data to be hosted on foreign servers. In contrast, the US has a capacity of 20GW, with another 20GW under development. This reliance on foreign AI data centers reduces India’s control over data-driven innovation.
Weak Start-Up Culture: India’s most successful startups focus on services rather than deep-tech challenges. Unlike the US and China, where venture capital backs high-risk, deep-tech innovation, Indian investors prefer safe, short-term returns from IT services.
Nasscom’s Irrelevance: Nasscom, claiming to be the voice of India’s IT industry, largely functions as a lobbying group. While it publishes reports on India’s potential as a $35-trillion economy, it lacks basic data on IT and BPO exports.
To truly harness its potential, India’s IT sector must pivot from being a mere service provider to a hub of innovation and technology development. Prioritizing software innovation, supporting tech startups, and investing in infrastructure will be vital steps toward securing a leading position in the global tech landscape.