IT sector braces for slower growth trajectory as US tariff tensions mount

US President Donald Trump’s decision to increase tariffs on Indian exports to 50 per cent may not directly affect India’s information technology (IT) sector, but industry executives said it will further delay demand recovery amid a weakening global macroeconomic environment.

 

Analysts also warned of a temporary slowdown in the expansion of global capability centres (GCCs), which have been a key driver of growth and investment in India’s tech ecosystem.

 

Sectors such as automobile, manufacturing, and retail are already bearing the brunt of tariffs — this was called out by IT executives during their earnings conferences last month. At that time, they said the global environment had not worsened further, compared to April. And while uncertainty was expected to remain, trade deals between the US and other countries gave them hope that some differences will be ironed out between India and the US. That is yet to materialise, and has added to the pressure. 

“There is no direct impact. Indirect impact is there globally, and not just in India. As more US clients face cost pressure, demand recovery will be slow in the IT sector,” a senior Nasscom official, who did not wish to be named, told Business Standard. 

 

When asked if the current situation would lead to IT companies ramping up hiring in the US, the official said localisation of hiring has been happening for at least seven-eight years.

 

“Companies will want to hire more but where is the access to the talent? It does not exist in the US, especially related to artificial intelligence (AI), data, and cybersecurity, and that is what makes these firms hire more here,” the official added. 

 

Pareekh Jain, founder of Pareekh Jain Consulting and ERIIT, said there will be a second order impact in terms of delays in deal ramp-ups, and announcements.

 

“I also think large deals which have been steadily increasing may also get impacted by this. More importantly, the timeline for the industry to get back to growth gets pushed back. Additionally, a new program by the US requires some tourists and business visa applications to pay a bond of $5000 - $15,000. These changes to the visa rule adds to the uncertainty for the sector,” Jain said. 

 

Trump’s push to manufacturers and other businesses to make and employ more in the US, however, could have a negative impact on the influx of GCCs in India in terms of expansion and headcount addition.

 

“We expect a temporary slowdown in GCC registrations until September. However, the full-year outlook remains strong, with 60-70 new GCCs still projected by year-end — driven by India’s cost advantage, skilled talent pool, and robust infrastructure,” Gaurav Vasu, founder and chief executive officer, UnearthInsight, said. 

 

A senior GCC executive said that the sector, which saw investments worth $5-10 billion even two years back, will see some initial slowdown in the coming months if the rhetoric gets worse and a deal is not reached. “Volume-based hiring will go down for the short term and GCCs will think of expanding some parts of their existing centres, such as product development or R&D, rather than the entire set up,” he added.