"Not just a cyclical downturn": Zoho's Sridhar Vembu sounds alarm on India's IT sector's future

Global macro uncertainties, including Trump's tariff measures, along with challenges due to artificial intelligence (AI), have added to the woes.

The export-led Indian IT sector, analysts note, is not directly hit by Trump's tariff order on goods, but there could be worrisome indirect bearings on it arising out of a possible slowdown in decision-making and GDP growth in America over higher tariffs, which may then cloud demand from specific verticals.

The $250 billion Indian IT pack, which derives a substantial chunk of its revenue from servicing US clients, is in a wait-and-watch mode to assess the full impact as it unfolds in the coming quarters (as well as the trade negotiations in the offing that could sway equations).

However, Zoho's Sridhar Vembu believes that the IT industry is facing a fundamental reckoning—not just a cyclical downturn or a challenge from artificial intelligence, but a structural shift that will reshape the next several decades.

In a post on X, Vembu contended that inefficiencies in products and services have long plagued the global software industry.

"My operating thesis: what we are seeing is not just a cyclical downturn, and it is not just AI-related. Even without the uncertainty induced by tariffs, there was trouble ahead.

"The broader software industry has been quite inefficient, both in products and services. These inefficiencies have accumulated over decades of a prolonged asset bubble," Vembu, who stepped down as CEO of the IT firm in January to focus on R&D, wrote.

He noted that India, as a major exporter of software and IT services, has adapted to and even relied on these inefficiencies, with millions of jobs tied to the sector’s continued expansion.

"Sadly, we adapted to a lot of those inefficiencies in India. Our jobs came to depend on them. The IT industry sucked in talent that may have gone into manufacturing or infrastructure (for example)," he said.

Vembu’s comments come amid increasing concerns around the software industry’s future as AI and automation threaten to upend traditional business models.

“We are only in the early stages of a long reckoning. The last 30 years are not a good guidepost to the next 30 years. We are truly at an inflection point," Vembu cautioned, urging industry leaders to challenge their assumptions and rethink strategies for the future.