Quick Take
- Indian IT companies generating $190B annually face indirect pressure from Trump tariff policies affecting US clients
- Manufacturing, logistics, retail sectors expected to cut IT spending first as tariff costs squeeze budgets
- Over 50% of Indian IT revenues come from US market, creating significant vulnerability to policy changes
- Deal slippage anticipated by September quarter as American enterprises reduce discretionary technology investments
- Larger firms with maintenance contracts may weather challenges better than digital-focused companies
India’s technology services giants are confronting mounting pressure as Trump administration tariff policies threaten to squeeze IT budgets across their largest market. Analysis from industry experts and executive interviews reveals these indirect impacts.
Phil Freshet, CEO of Hafs Research, warned that tariff-driven inflation will force American firms to reduce discretionary IT spending, creating indirect pressure on India’s $190 billion IT services sector. The timing compounds existing challenges from AI-driven efficiency changes reshaping the industry.
TARIFF RIPPLE EFFECTS HIT IT BUDGETS
While tariffs don’t directly tax IT services, they create cascading effects through the American economy. Freshet explained, “Trump’s tariffs, while not directly taxing services, increase inflation pressures in the US, leading American firms to reduce discretionary spending.”
The tariffs function as a tax on American buyers, forcing them to manage higher input costs by reducing IT budgets. Manufacturing, logistics, and retail customers will slash IT spending first as they absorb tariff-driven cost increases.
According to Freshet, deal slippage will hit manufacturing, logistics, and retail verticals, with impacts becoming visible by the end of the September quarter. American enterprises are reducing discretionary spending across technology investments.
SECTOR VULNERABILITY EMERGES
Kotak Institutional Equities noted that the demand environment took a slight hit due to uncertainty over Trump’s tariff regime affecting multiple sectors. The hi-tech vertical focuses on AI-related investments while cutting other spending categories.
The Kotak report stated, “The healthcare vertical is operating under considerable uncertainty with payers under cost pressure. There is uncertainty regarding potential changes to drug pricing policies under the Trump administration, which affects healthcare sector spending.”
Indian IT companies face particular vulnerability given their dependence on the US market for over half their revenues. The timing proves challenging for firms that had hoped for clearer trade relations by August.
UNEVEN RISK DISTRIBUTION
Not all IT companies face equal exposure to tariff impacts. Companies with higher discretionary digital exposure will bear the brunt of spending cuts, while those with deeper US market footprints face greater challenges.
Larger IT firms may weather the storm better due to stable, predictable maintenance engagements that provide protection against tariff-related impacts. India’s domestic IT industry, valued at around $280 billion, remains outside direct tariff impact since services are intangible.
Rohit Ashwa Aggarwal, partner at Everest Group, said, “Clients in sectors directly affected by tariffs may face cost pressure. This could trickle down into IT budgets, particularly for discretionary projects.”
CLIENT SENTIMENT CHALLENGES
Perception creates additional hurdles as boardrooms often conflate goods and services, prompting unnecessary concern among clients about trade tensions. Parikh Jain, founder of EIIR, observed, “Clients will be concerned about optics. They will be shy of public announcements of large deals.”
The risk involves client sentiment shifts and altered spending patterns that could delay project rollouts and postpone significant deal announcements. Namratha Darshan, principal analyst at ISG, warned about slower client spending: “Client spending might get tighter and slower, and that could have a potential impact on services.”
Unlike China’s rare-earth advantage, India lacks equivalent leverage in IT services. While US firms depend on Indian IT talent, these services can be replaced with other offshore providers, and automation threatens India’s competitive position.
STRATEGIC ADAPTATION REQUIRED
Indian IT companies must prepare for challenging market conditions as the sector already faces pressure from AI-driven rate cuts. Slower deal cycles add complexity requiring strategic adaptation.
Firms should focus on stable maintenance contracts that provide predictable revenue streams, while discretionary digital projects face higher risk. Recent US government initiatives to reduce IT spending through Digital Operations and Governance Efficiency (DOGE) add sector pressure.
Freshet highlighted, “Indian IT exporters report immediate impacts, with some US buyers suspending or cancelling orders amid concerns including geopolitical factors such as Russia-related issues,” illustrating how quickly trade tensions affect business relationships.
Sourcing and Global Capability Center leaders need to revalidate their exposure, keep messaging aligned, and monitor downstream effects. The combination of tariffs and AI transformation requires careful navigation between cost optimization and innovation investments.
Companies that adapt quickly to manage both immediate tariff impacts and longer-term AI transformations will maintain competitive advantages in an increasingly challenging market environment.
