US Tariffs To Slow Down Indian IT’s Growth

Generally, global companies outsource more. So, the discretionary spend is likely to come down by these companies. Manufacturing and consumer industries are expected to be impacted more due to these tariffs - Pareekh Jain, Founder, Pareekh Consulting

Bengaluru: Indian IT firms will have to cope up with low discretionary spend for quite some time as an after effect of Trump tariffs imposed on Wednesday. As global enterprises rush to absorb the higher tariff rates, their ability to spend on new technology areas is going to be severely curtailed in the coming quarters, industry experts said. Therefore, the revenue growth rate of Indian IT industry is unlikely to see much change in FY26 as compared to previous fiscal year.

Notably, revenue growth rate of large IT services firms has slumped to mid-single digit in the last fiscal year after posting double digit growth rates during the post Covid period. Even most mid-tier IT firms are not able to post double digit growth rates in the last fiscal year.

“Because of the tariffs by the US, all global companies will be impacted. Generally, global companies outsource more. So, the discretionary spend is likely to come down by these companies. Manufacturing and consumer industries are expected to be impacted more due to these tariffs. These constitute 40-45 per cent of the total revenue and if five per cent of discretionary spend gets impacted, then the (revenue) hit may be in the range of around two per cent,” Pareekh Jain, an IT outsourcing advisor & Founder of Pareekh Consulting, said.

According to industry experts, manufacturing, automotive, aerospace, hi-tech and retail segments of the IT industry are likely to see the adverse impact of these tariffs. On Wednesday, Trump administration imposed reciprocal tariffs on all trading partners in their bids to reduce US’ trade deficit and attract more manufacturing industries into the country. Though service sector, under which technology industry comes in, has not been directly affected; experts see second order impact playing out for the global IT industry.

From April 2, US has imposed 20 per cent tariff on goods exported from European Union. UK saw imposition of 10 per cent tariff on its exports. European region contributes around 30 per cent of Indian IT industry’s revenue.

Similarly, other key markets like Japan, South America and others have also seen imposition of steep tariffs.

Experts also predict that the ability to spend on new technology areas of the US companies will also decline in the short-term due to such tariff imposition. This is because US as an economy may slow down owing to inflationary pressure as cost of goods will go up in the near-term. Such slowdown will deter ability of the US firms to spend more on technology areas.

However, experts opine that the legacy part of technology spend (called as run part of technology in industry parlance) will continue.

“Overall, FY26 is not likely to see much growth uptick in Indian IT industry as projected earlier due to such tariff war,” Jain said.

Meanwhile, IT firms are also closely watching the upcoming trade deals that will be stitched between countries to lower the impact of tariffs, sources said.