For over three decades, Indian IT has thrived on outsourced services, particularly from the US. That model now faces its biggest challenge. The proposed US HIRE Act, which seeks to impose a 25% tax on outsourced services, directly targets India’s $250+ billion IT export industry.

If passed, it could sharply hit revenues at TCS, Infosys, Wipro, and HCLTech. While industry voices have been arguing that this disruption could be an opportunity, a few leaders look at the situation from a different angle. 

Vivek Singhal, founder of VSpartans Consultants, in an X post, urged Indian IT companies to “focus on creating products that can replace American software — email services, cloud storage, maps and navigation.”

With a domestic market of 1.4 billion users, the case for self-reliance has never been stronger, according to Singhal.

Caleb Friesen, the tech influencer, called it a “blessing in disguise”, which could push Indian engineers to create global software products, even startups, rather than contributing billable service hours for others. The irony is that foreign firms are willing to build in India, while Indian IT giants still hesitate.

Outside of rare successes like Zoho or ERPNext, Indian IT firms have struggled to build global-scale products. 

A Decade Without Breakthroughs?

“Indian IT services companies are not product companies,” said Mohandas Pai, noting that the sector hasn’t come up with a single breakthrough product in the past decade. Despite deep pockets, Pai argued, Indian IT largely focuses on client-specific solutions, while the West builds foundational AI models. 

The consequence–dependence on foreign innovation while merely implementing it locally.

Gaurav Vasu, founder of UnearthInsight, had a contrary opinion. He pointed out that Indian IT firms already run multi-billion-dollar product and platform businesses that account for roughly 15–20% of revenues. 

Infosys has Finacle, AssistEdge, XtractEdge, Equinox, and Meridian; TCS has BaNCS, Cognix, Quartz, and MasterCraft; HCL runs HCLSoftware, which includes BigFix, Unica, and AppScan.

But he concedes that these platforms mostly complement service offerings, rather than lead global markets. “While these companies have developed platforms and products complementary to their service lines, their core DNA and expertise still lie in delivering services,” he said, while adding that the real moat for IT services players has traditionally been in implementing, maintaining, and upgrading enterprise license products.

The products that do exist usually complement larger ones, or focus on markets where global vendors aren’t as aggressive, like India and Southeast Asia. 

Sitting on Cash, Watching Others Move

India’s IT giants together hold more than $20 billion in cash reserves. But instead of deploying that war chest on R&D or acquisitions, most of it goes to shareholders. Experts warn that this risk-aversion could cost the sector its future.

Ramkumar Ramamoorthy, partner at Catalincs and former Cognizant India chair, cautions about “techolonisation”—a future where India depends on others for technology needs. “If we don’t act now, we risk looking back in regret for having missed a generational opportunity,” he said.

He argued that Indian IT could use its cash reserves the way Tencent or Alibaba did—taking minority stakes in promising startups and building infrastructure for the country’s own AI and cloud ecosystem. Instead, the sector clings to the logic of its asset-light service model, even as that model comes under threat.

Vasu, however, believes that India already has homegrown alternatives to Western products.

BusinessNext, for example, competes with global CRM systems. Government platforms like Passport Seva, Income Tax e-filing portal, Government e-Marketplace and electricity board systems run on Indian IT technology.

But on critical infrastructure such as cloud, India still depends almost entirely on US players, with even government websites running on Microsoft’s cloud. 

HCLTech CEO C Vijayakumar had earlier said that AI will disrupt IT services in ways that cloud or digital transformation never did. Generative AI is reducing timelines for billion-dollar projects by years. Infosys CEO Salil Parekh has admitted the industry has to be “paranoid” about what comes next.

The paranoia is warranted. AI coding tools, agents, and automation threaten the very foundation of India’s services play—millions of engineers assigned to testing, maintenance, and integration projects. Now this, coupled with the looming threat of the US HIRE Act, is a challenge for Indian IT.

The AI Disruption is Real

The real disruption, however, is coming from AI. Vasu agrees with the HCLTech CEO that the old services model has run its course. 

“Everybody has investments, everybody has done AI verticals. But we haven’t seen any big outcomes from Indian IT services firms in terms of AI’s contribution to their pure play value,” he said. Clients are still transitioning to cloud and modern ERPs before they can fully embrace AI, which slows down the shift.

Vasu doubts that Indian IT would reinvent itself around AI within the current structures. “It’s not their DNA to completely pivot, shift and become AI-first companies,” he said. For that, they would need separate entities, new leadership, and a product-led mindset. 

That hasn’t stopped them from investing though. Infosys has its AI platform Topaz and has trained 300,000 employees on AI. Wipro launched AI360 with a $1 billion commitment. TCS created an AI and Services Transformation unit under senior executive Amit Kapur. HCL is also building out its AI practice.

Indian IT firms are likely to continue funding or acquiring startups through their venture arms. But even here, Vasu notes, risk appetite is limited because these companies are rich dividend payers with obligations to retail and institutional investors. Unlike VCs, they cannot afford too many failed bets.

Critics argue that the missing piece is not just risk capital, but an entire ecosystem. Without stronger universities, deep research, and venture capitalists willing to take risks, India will struggle to produce world-class products at scale. 

For now, the Indian IT sector faces a fork in the road.

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