By Narry (Narsimha Rao Mannepalli)
It’s the Annual earnings season for most of the Indian IT industry and would be a good checkpoint to reflect on where we are and what lies ahead of us. By all indications, FY 2026 is shaping up to be another year of muted growth for the Indian IT industry—likely in the low to mid-single digits. That would make it the third consecutive year of sluggish performance, a scenario the industry has never encountered before. Recent tariff announcements in the US have only worsened short-term prospects.
This raises a pressing question: Is this a temporary slump driven by cyclical factors, or are we witnessing deeper structural issues? Has the industry reached a point where a fundamental reset—across business models, investment strategies, and growth philosophies—is overdue?
A Look Back: The Rise of Indian IT Services
The Indian IT services industry rose spectacularly over the past three decades, evolving into a $250+ billion powerhouse. Much of this success stemmed from a few early, game-changing innovations:
- Global Delivery Model: The ability to serve clients across continents, combined with on-site support through a mobile talent pool, gave Indian firms a unique edge.
- Talent Innovation: Leveraging India’s vast engineering talent, firms trained fresh graduates (often with 20–40 weeks of upskilling) into globally deployable IT professionals.
- Strong Foundations: Early investments in world-class infrastructure, employee-friendly HR policies (like ESOPs), and robust governance practices attracted top talent.
Visionary leadership and consistent execution helped the industry scale globally. But after three decades of largely linear growth, it’s perhaps time to step back and ask—what needs to change?
The Current Landscape: Some Troubling Trends
Over the past five years, a few patterns have emerged—some self-inflicted, others driven by external forces:
1. Shrinking Services Pie
If we track Tech evolution, we notice that with every new tech wave, the quantum of services needed for the Tech adoption has come down. This coupled with the current large size of the companies / Industry now begs the question, can revenues from Services alone sustain the growth appetite for these companies. If we recall, earlier ERP implementations (which Fuelled growth during the 2000-15 timeframe) required services worth 2–3x the software cost. First with Cloud & Digital and more so with AI we see much lower spend on services vis-à-vis software. That is not good news for anyone just focused on services.
2. Growth Through Scale, Not Innovation or Value
Much of the recent growth has come via large deals and acquisitions. These transactions by their very nature, while boosting top-line, often dilute margins and do little to enhance innovation or intellectual property. The focus is less on value-addition and more on cost takeout and building scale. There are not many instances where a large deal or an acquisition has helped companies accelerate their growth or help build strong IP / differentiation.
3. Narrative Vs Capability & Differentiation
Once known for under-promising and over-delivering, the industry now builds ambitious narratives but it not able to back it up with capabilities in terms of IP / Products / platforms. The value they offer in most cases is still predominantly around lower cost and availability of skilled talent. While brand visibility has improved over the time – unfortunately we don’t see the same uptick in differentiation which often is a route to premium pricing.
4. Fast Followers, Not First Movers
Historically, Indian IT companies have thrived as fast followers, letting others take the risks of new tech and these companies instead focusing on scaling up ideas which have taken-off. This has how the industry maximized the Y2K or Dotcom or ERP or Digital waves. However, this strategy is bound to hurt at some stage where you suddenly realize your leadership in the marketplace is weak and questionable.
GDM is no longer a unique differentiator and entry barriers are very low and the established players find themselves lacking a USP. This also explain the growth of GCCs in the last 3-4 years.
In the most recent AI wave, Indian IT’s response has largely been limited to training and partnerships, not foundational R&D or IP creation or picking bets on targeted Tech or Industry specific innovation.
5. The Predictability Paradox
Quarter-on-quarter predictability in revenues and margins was once a badge of honor. But could this obsession with consistency be hampering bold investments in future capabilities? Is this need to meet Predictable outcomes QonQ making the companies shy to take any significant risks. Risk has always got to be taken in combination of potential positive consequences and high risk and high positive consequences’ bets probably are need of the hour. Of course, over the last decade companies have taken higher risks on Large deals and pricing but these are causing value (correlated to Price or contribution per employee) to erode.
6. The Talent Disconnect
The inability to move up on the value-chain and decline in pricing power meant inability to attract talent from Top 100+ colleges in the country. This is pushing companies to hire from lower-tier colleges, which impacts talent quality—and innovation capability—in the long run.
Ideas such as delaying promotions, delaying joining dates and delaying comp hikes– while may be OK as one-off practices, when they became commonplace (and unfortunately they have) they hurt morale, innovation, and long-term talent quality and finally long term sustainability is put at risk.
Is an Industry which was built in hiring best-in-class talent now having to give up on the best-in-class Talent aspiration?
Where the Industry Falls Short
At a high level, the Indian IT services industry seems to be underperforming on three strategic fronts:
1. Differentiation
Revenue per employee has stagnated and has remained in the 50-60K/year range for over a decade and companies are unable to break out of this band. This is because of greater commoditization and lack of any significant IPs or non-linear revenue models. If this trend continues the long term sustainability is in question because, inevitably, the cost per person only goes up and today these costs are kept down by a lot of operational squeeze and/or suboptimal HR choices.
2. Diversification
Unlike large conglomerates in India and abroad, most IT services firms have stuck narrowly to their core business and have done very little to identify new business lines which can bring in disproportionate growth. A great example of diversification is one of Amazon, which was a book store and e-commerce company, when they bet big on Cloud Services with AWS. Of course when we diversify we are likely to have hit and misses and that’s where the next point on Risk appetite comes in.
3. Risk Appetite
The industry has mastered discipline, execution, and profitability. But it has largely avoided bold, high-risk bets. Ironically, this risk aversion might now be its biggest risk. The fact that there have been no big failures is an indication of this risk aversion.
The Road Ahead: Time for Bold Moves
The good news? Indian IT firms still enjoy strong balance sheets, respected brands, and deep leadership benches. But if the goal is to lead the next 30 years, not just survive them, it’s time for a few critical reboots:
- Bet big on new technologies and verticals: Can companies take bold leadership positions in emerging spaces—AgriTech, ManufacturingTech, EducationTech, MobilityTech, SpaceTech, FinTech—not just as service providers but as product, platform, and even device creators? All aimed at transforming a sector with the power of Tech and time is ripe for such transformations around the world.
- Expand beyond pureplay IT services into adjacent industries: Lines of business such as education, skill development, or talent enablement (blue-collar and white-collar) could offer powerful new engines of growth. We all know Education and skill building is a priority in many societies – with their vast experience (and investments made) is this not an area to get into as a business opportunity. This is also a sector which is waiting for Tech to transform outcomes in a dramatic way.
- Reimagine the talent model: Is it time to build parallel pyramids within organizations? Can we create viable models that attract top-tier talent with competitive compensation—and allow them to thrive?
I am sure there can be many other ways the industry can build newer revenue streams which are in the growth trajectory. Today Technology is transforming just about every business out there and Tech providers have the capabilities to win in many of these emerging areas.
Much of the renewed focus and consequent decisions must come not just from management, but from investors and board members. After all, management is often executing to meet stakeholder expectations. But today, the moment calls for deeper introspection and disruption of linear thinking.
The future belongs to those who can reinvent themselves while building on their legacy. For Indian IT, the question is no longer if a reset is needed—but how soon. Doing ‘more of the same thing’ is probably not going to cut it for too long.
Narry is a veteran of the IT industry with 30+yrs of experience and played prominent leadership roles (was an EVP & Co-Head of Global Delivery at one of the IT Majors). He is currently an Angel Investor and advisor to established enterprises and startups in the AI space. A keen enthusiast who follows the industry trends combining it with vast experience in leadership roles to bring his deep insights.
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