Sridhar Vembu, the co-founder of Zoho Corporation, has raised alarms about the future of India's software and IT services sector, warning that it is facing a profound reckoning. In a recent post on X (formerly Twitter), Vembu stated that the current downturn is not merely cyclical or driven by artificial intelligence (AI), but rather a result of deep-rooted inefficiencies that have plagued the industry for decades.
Vembu, who stepped down as CEO in January 2025 to focus on research and development, emphasized that the broader software industry has been inefficient in both products and services. He noted, "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." This statement underscores a growing concern that the industry is at an inflection point, requiring a reevaluation of its strategies and assumptions.
According to Vembu, India, as a major exporter of software and IT services, has adapted to these inefficiencies, with millions of jobs tied to the sector's expansion. He lamented, "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)." This redirection of skilled talent has long-term implications for the country’s economic structure.
The context of Vembu's warning comes amid disappointing financial results from leading Indian IT firms such as Infosys, Tata Consultancy Services (TCS), and Wipro. These companies have reported losses and have indicated a potential hiring slowdown across the sector. Infosys, for instance, has projected a revenue growth of only 0-3% for FY26, a significant drop from previous forecasts. The company's net profit for Q4 FY25 saw a year-on-year decline of 11.75%, falling to ₹7,033 crore.
TCS has also acknowledged weak discretionary spending, reporting its slowest revenue growth in four years, with a profit of ₹12,224 crore for Q4 FY25, down 1.69% year-on-year. Wipro, while reporting a 25.9% jump in net profit to ₹3,569.6 crore, has projected a revenue contraction of 1.5% to 3.5% for Q1 FY26, reflecting the overall turbulence in the industry.
Amid these challenges, Vembu's comments resonate with many in the tech community, who feel that the traditional outsourcing model that once propelled the industry is becoming increasingly outdated. Clients are no longer satisfied with just cheap labor; they demand agility, innovation, and comprehensive digital transformation. This shift in client expectations, combined with geopolitical pressures and shrinking deal sizes, is forcing Indian IT firms to reassess their business models.
Moreover, Vembu pointed out that the industry's reliance on bloated systems and over-hiring has contributed to its inefficiency. He stated, "The broader software industry has been quite inefficient, both in products and services. These inefficiencies have accumulated over decades of a prolonged asset bubble." This accumulation of inefficiencies has created a situation where the industry is ill-prepared for the rapid changes brought on by AI and automation.
As the global tech landscape shifts, Vembu believes that the last 30 years of industry practices are not a reliable guide for the future. He urged industry leaders to challenge their assumptions and engage in fresh thinking, stating, "We are truly at an inflection point. We have to challenge our assumptions and do fresh thinking." His call to action reflects a growing awareness that the industry must adapt to survive.
Reactions to Vembu's post have been mixed, with many agreeing with his assessment of the industry's inefficiencies. One user commented, "And we sacrificed and burnt generations of talent in the process to serve as a backdoor office to the global giants at the cost of India's autonomy and leadership. Jugaad is inefficiency, not a path to cutting-edge innovation and digital sovereignty." Vembu acknowledged this sentiment, expressing regret over the lost potential of India's skilled workforce.
The challenges facing the Indian IT sector are compounded by external factors such as the tariffs imposed by the U.S. government and the ongoing economic uncertainty. New tariffs introduced by President Donald Trump have further disrupted the sector, delaying fresh orders and hindering project ramp-ups. Experts warn that the sector may be heading towards a shakeout, as many companies struggle to adapt to the changing demands of the market.
In this climate of uncertainty, Vembu's insights serve as a crucial reminder of the need for transformation within the industry. He highlighted that India is only in the early stages of a long reckoning, stating, "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." This perspective encourages a reevaluation of priorities and a commitment to innovation.
As the Indian IT sector grapples with these realities, it must confront the consequences of its past decisions while striving for a more sustainable and resilient future. The path forward will require a concerted effort to harness talent effectively and embrace new technologies that can drive growth and efficiency.
