US tariffs may hit India's IT sector indirectly via tech spend cuts: EY

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Though the Indian IT services sector is not directly hit by the newly-announced 25 per cent US tariffs on goods, the ripple effects could be "substantial" as rising input costs may prompt US companies to scale back discretionary tech spends, Nitin Bhatt, Technology Sector Leader at EY India said on Thursday.

The tariff announcement comes at a time when the export-led Indian IT industry is grappling with macroeconomic uncertainties and the advent of Artificial Intelligence (AI).

"While the Indian IT services sector isn't directly hit by the newly announced 25 per cent US tariffs, the ripple effects could be substantial. Rising input costs may prompt US companies to scale back discretionary tech spending. Simultaneously, growing unease around workforce mobility and evolving digital taxation frameworks could redefine how cross-border services are priced and delivered," Bhatt said.

Companies that pivot to hybrid delivery models, diversify geographically, and embed AI at scale will be better positioned, not just to weather demand volatility, but to lead in an increasingly fragmented and uncertain global landscape, Bhatt pointed out.

India's largest IT services company TCS is preparing to lay off over 12,000 professionals, or two per cent of its global workforce this year, in what it describes as a broader strategy to become a future-ready organisation', with a focus on investments in technology, AI deployment, market expansion, and workforce realignment.

Market watchers believe that firings at TCS' could send fresh tremors in the tech industry.

India's top IT services companies have delivered single-digit revenue growth in Q1FY26, capping off a somewhat-sobering June quarter as macroeconomic instability and geopolitical tensions have weighed on global tech demand and delayed client decision-making.

TCS MD and Chief Executive K Krithivasan recently said the company is experiencing a "demand contraction" due to the continued uncertainties on the macroeconomic and geopolitical fronts, and added that he does not see a double-digit revenue growth in FY26.

Krithivasan had explained the delays in decision-making experienced in the preceding quarter have "intensified" now, and hoped for the discretionary spends - a prime mover of revenue growth for IT companies - would return once the uncertainties ebb.