Geopolitical tensions and AI; The double-edged sword for Indian IT

What is your opinion about tech spending in an uncertain global environment?

Uncertainty hits spending. If uncertainty is reduced, enterprises can plan for the medium term even if the cost is a little bit higher. Enterprises will opt for more cost-optimisation deals in that case. Currently, uncertainty is going down a bit due to the US-China deal.

How do you view India's position in terms of geopolitical events? Will the growth of the Indian IT sector be impacted if adverse geopolitical events happen? Can you provide some perspective on this matter?

India's main advantage is the political stability and availability of talent at scale. If an adverse geopolitical event happens, then, of course, India will be impacted. However, we don't see any such event for now.

India's technology industry has a very deep engagement with the US. What kind of threats do you see if the India-US relationship goes through a rough patch?

India-US relationship in the technology space is very deep. This has grown irrespective of ruling dispensations in the US and India. So, decoupling of the Indo-US relationship in the technology space is not anticipated. Given the availability of talent at scale in India, technology companies across the world will rely on Indian talent for most work, from service, maintenance, to innovation. Of course, it may happen as AI (artificial intelligence) accelerates, dependency on human resources will come down. One of the biggest strengths of India is its demographic dividend. Apart from it, India is itself a large market, and it has technology talent, which is available at scale. These strengths will play out in its favour.

What kind of diversification strategy will Indian IT firms follow in order to reduce their dependency on the US and European markets? Can you provide some views on this matter?

Indian IT and ER&D firms have to navigate the current environment. Given the geopolitical dynamics, Indian technology firms should start exploring markets beyond the US and Europe. Moreover, the Indian IT industry has to prepare for the AI-led disruption that is happening across the world. It is a fact that AI is going to reduce the number of jobs in the tech sector. It means job losses are probable here. The assumption about the future growth of the Indian IT industry is that Indian IT firms will increase their market share in the IT services industry and grow higher than their counterparts. Though the market is not growing fast, our companies can report good growth because of their increased market share. Now, this may come under threat because AI is automating several tasks. It means the requirement for manpower will come down in the coming years. It may lead to an unemployment problem in the country, given the large-scale employment it has provided over the years. That is the reason that, despite not having a big manufacturing contribution, the services industry was able to sustain high GDP growth. Now, if the growth of the service industry is threatened, then the country has to find ways to generate jobs elsewhere. That is a larger problem. So, the bigger problem of the Indian IT industry is not geopolitics but AI-led disruption. The Indian IT industry has grown all through in a hostile environment.

How is generative AI (GenAI) bringing in changes among technology service providers? What are your views on this matter?

The technology companies in the US are trimming their workforce despite posting better results. This is mainly because they are adopting AI for automating tasks. Similar is the case for consultancy firms. For instance, large consultancy firms are using GenAI tools for research. Earlier, junior employees were tasked to dig into the data and do relevant research. Now, GenAI is doing the work. Therefore, several internal work and data management tasks are being done through GenAI. So, GenAI's impact on the technology world is becoming visible. But that is more prominent in the US. India has not seen much impact. But it can't be said that the impact on India will not be felt. Indeed, demand for talent will not be at a similar scale as it used to be after the advent of AI. AI is killing a lot of inefficiencies in the marketplace. So, the established business model will definitely see changes. For instance, the pyramid structure, deal structure, pricing and related parameters is going to change in the coming time.

What is happening in the deal flow space? Are renewals of outsourcing contracts being done in the marketplace? What is your assessment as far as discretionary spend is concerned?

Renewals are happening. But clients are asking to renew the contract at a reduced rate. They are asking to pass on the benefits coming from GenAI to them. There are reports that around 20 per cent reduction is happening owing to this phenomenon. The duration of outsourcing contracts is also being shortened. The kind of deal getting signed, like transformative or cost-saving, depends on the sector. For instance, manufacturing companies are not signing large deals at this point in time. The banking sector is doing good. So, there are many transformative deals getting signed in the banking sector. So, renewals are happening in the marketplace. Transformative deals are getting signed, but these are sector-specific. As far as discretionary spending is concerned, it has not yet come back as expected earlier. Overall, there is a slowdown in the growth rate, but there is no degrowth as such.