Indian IT companies face a double challenge. “Trump’s tariff policies create new challenges for the Indian IT sector, which is valued at around $190 billion, alongside ongoing pressures from AI-driven efficiency changes
“The timing is challenging for Indian IT firms, which had hoped for clearer trade relations by August. However, tariff announcements have increased uncertainty for the sector’s recovery.” The sector depends on the US for over half its revenues.
“Trump’s tariffs, while not directly taxing services, increase inflation pressures in the US, leading American firms to reduce discretionary spending,” said Phil Freshet, CEO of US-based Hafs Research.
Why It Matters Now
The tariffs work like a tax on American buyers. This cuts into India’s IT services model. Manufacturing, logistics, and retail customers will slash IT budgets first. They need to manage higher input costs.
According to Freshet, deal slippage will hit manufacturing, logistics, and retail verticals. This impact should become visible by the end of the September quarter. American enterprises are slamming on the brakes on discretionary spending.
Kotak Institutional Equities noted that the demand environment took a slight hit. Uncertainty over Trump’s tariff regime affects multiple sectors. The hi-tech vertical focuses on AI-related investments while cutting other spending.
“The healthcare vertical is operating under considerable uncertainty with payers under cost pressure,” the Kotak report stated. “There is uncertainty regarding potential changes to drug pricing policies under the Trump administration, which affects healthcare sector spending.”
Market Impact in India
Not all IT firms face equal risk. Companies with higher discretionary digital exposure will bear the brunt. Those with deeper US footprints also face greater challenges.
Larger IT firms may weather storms better. They have stable, predictable maintenance engagements. This provides some protection against tariff impacts.
“India’s domestic IT industry, valued at around $280 billion, is not directly impacted by these tariffs. “Services remain intangible and outside traditional trade barriers. However, second-order effects worry analysts.
“Clients in sectors directly affected by tariffs may face cost pressure,” said Rohit Ashwa Aggarwal, partner at Everest Group. “This could trickle down into IT budgets, particularly for discretionary projects.”
Risks and Considerations
Perception creates additional challenges. Boardrooms often conflate goods and services. This prompts unnecessary concern among clients.
“Clients will be concerned about optics. They will be shy of public announcements of large deals,” said Parikh Jain, founder of EIIR.
The bigger risk involves client sentiment and spending patterns. Tighter budgets could delay project rollouts. Significant deal announcements might get postponed.
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,” she told Money control.
Unlike China’s rare-earth advantage, India lacks equivalent leverage. US firms depend on Indian IT talent. But these services can be replaced with other offshore providers. Automation also threatens India’s competitive position.
What Business Leaders Should Know
Indian IT companies must prepare for challenging market conditions. The sector already faces pressure from AI-driven rate cuts. Slower deal cycles add another layer of complexity.
Firms should focus on stable maintenance contracts. These provide more predictable revenue streams. Discretionary digital projects face a higher risk.
.”Recent US government initiatives to reduce IT spending, such as through Digital Operations and Governance Efficiency (DOGE), add pressure on the sector.” Companies like Accenture already feel the pressure. This adds to concerns about future growth prospects.
Sourcing and GCC leaders need to revalidate their exposure. They should keep messaging aligned and watch for downstream effects. The combination of tariffs and AI transformation requires careful navigation.
“Indian IT exporters report immediate impacts, with some US buyers suspending or cancelling orders amid concerns including geopolitical factors such as Russia-related issues.” This shows how quickly trade tensions affect business relationships.
The sector must manage both immediate tariff impacts and longer-term AI transformations. Success requires balancing cost optimization with innovation investments. Companies that adapt quickly will maintain competitive advantages.
