Is this the end of the Indian IT Industry?

In today’s episode on 1st August 2025, we trace a season of IT layoffs and talk about the quiet rise of in-house tech hubs that challenge India’s $250-billion outsourcing machine.

• 0:00Speaker 00

  Hello folks, you're tuned into Finshots Daily and in today's episode, we chase a season of IT layoffs and talk about the quiet rise of in-house tech hubs that challenge India's $250 billion outsourcing machine. Just three days ago, Tata Consultancy Services or TCS confirmed it could let go of up to 12,000 people this year, which is roughly 2% of its global headcount. Salary hikes were also put on hold and lateral hiring was frozen. This felt like a travel in a company long known for Tata's legacy and lifetime employment and anyone holding the stock discovered it had delivered roughly zero return over the last four years. At the same time, HCL announced that junior employees get only a token of 1-4% raise in salary,

• 0:45Speaker 00

  while mid-level employees have yet to get any. Infosys, the once voracious campus recruiter, onboarded just 2-10 people last quarter. Revenues across the top Indian vendors are flat or falling in terms of USD and every earnings call blames it to a cocktail of AI automation, tight US tech budgets and plain old price pressure. But you see, none of that pain is uniquely Indian because Microsoft is also laying off thousands of people in its Azure cloud unit. Intel is laying off 24,000 workers and halting major capital expenditures and AWS is also laying off hundreds of workers. So, why are tech companies letting go of so many employees? You see, code generation tools can now write boilerplate code in minutes.

• 1:31Speaker 00

  AI agents can automate repetitive workflows, pull real-time updates and even coordinate things across teams. In other words, a large chunk of what mid-level employees used to do, especially in tech and operations, can now be done faster, cheaper and more consistently by machines. But when it comes to the Indian IT industry, it's not just AI automation that is affecting revenues. While headline layoffs mount in legacy outsourcing, multinational clients are quietly expanding their GCCs, that is Global Capability Centers, within India.

• 2:05Speaker 00

  For the uninitiated, a GCC is when a large MNC sets up its own legal entity within the country, hires its own engineers, and runs the same SAP upgrade or data science sprint that it once paid TCS or Enforces to handle. So, when a Fortune 500 firm sets up a GCC in Bengaluru or Chennai, they don't save costs, they also avoid vendor delays, gain ownership over proprietary tools, and have strict data controls. In many ways, it's vertical integration. And given enough volume, vertical integration always saves costs. Apart from this, throw in an office badge that says Google or Microsoft instead of TCS or Enforces and you see the appeal, don't you?

• 2:48Speaker 00

  This is why the GCC ecosystem grew about 40% in the financial year of 2024, while service-based IT firms eked out less than 5% growth. In fact, these GCCs are expected to grow this year even more than they did in 2024. At the same time, India is becoming more expensive. As the economy grows and wages rise, so do the costs of operating here. This wouldn't be a problem if India were the only option. But countries like Vietnam, the Philippines, and even Mexico are offering competitive talent at lower prices. So, if a global firm wants cheap services, they have plenty of options. And if they want quality and control, they have GCCs. The middle ground where Indian IT vendors once ruled is slowly vanishing.

• 3:31Speaker 00

  That leaves traditional IT companies squeezed from two directions. Some folks go so far as to say that Indian IT companies are just glorified HR firms, moving people around from one project to another. That might sound a bit cynical, but the truth is that most of these firms haven't built products. They've built billing engines. They charge clients by the hour based on how many people they assign to a project. Now, what's the problem there? That model works only as long as human effort is essential. When machines start doing the job 24/7, billing by the hour becomes a liability. But the obitaries can wait. For now. You see, Infosys for instance is still planning to hire 20,000 freshers this year. And unlike its peers, it actually saw decent revenue growth in the last quarter.

• 4:16Speaker 00

  That makes it a bit of an outlier in the current environment. It shows that large deals are still being signed and that traditional outsourcing is not completely dead. And then there's Zoho. This Chennai-based company has quietly built a suit of world-class software without relying on any external investors. It controls everything from product development to cloud hosting and it has managed to do it profitably. More importantly, Zoho owns its IP and doesn't just offer services that can be replicated or automated. It builds tools that solve real business problems and those tools are hard to replace. That's the direction Indian IT firms will likely need to move toward. Because services can be copied, they don't offer margins and they don't offer pricing power. Products on the other hand, come with a moat.

• 5:01Speaker 00

  Sure, they can be copied, but if you can build something that works well and solves a pain point for clients, you can keep charging a premium for it year after year. Of course, shifting from services to product is easier said than done. It takes a different culture, a different structure and a whole lot of patience. You can't pivot a one lakh person services company and the entrenched culture overnight. Sure, IT firms might lose clients in the short term and face lower margins and investors may not like that. But the question is not whether the transition is hard, the question is whether it is necessary. Because if Indian IT companies want to stay relevant in the coming decades, they might have to stop being service providers and start being product-led. They might have to let go of the old playbook and write a new one.

• 5:45Speaker 00

  One that isn't just about billing hours, but about building value. And if they don't, someone else will. Thank you for listening to today's episode. And if you want to share your feedback or suggestions, do drop us an email to hi@friendshotstarted. Until next time.