Global Tech Industry And Indian Firms Await Impact Of Trump’s New Policies

Technology industry across the world is in a ‘wait and watch’ mode. As Trump administration’s new policies vis-à-vis tariffs, immigration, ongoing conflicts and several such issues unfold, wiser counsel is compelling many enterprises to wait for the future developments before committing investments. This is especially true for the United States and Europe, which together account for over 85 per cent of Indian IT services companies’ revenue. They are reluctant to increase their technology spending in such uncertain environment. Industry experts have seen that enterprises are delaying finalisation of their technology budgets for 2025. With tariff wars ensuing across the globe, many feel that the US economy may start witnessing inflationary pressure all over again, in which event interest rate cut decisions will be delayed. In this environment, corporates in the US are continuing with their ongoing spend without committing any new ones. Similarly, Europe is facing its own set of problems. Apart from inflation, friction between the US and Ukraine with regard to Russia’s aggression has added new chapters to the ongoing uncertainty. Against this backdrop, the general consensus that 2025 will be better than last year may not hold true anymore.

And the biggest risk is coming from policies of the Trump administration. However, the silver lining is that Trump’s policies have not touched the services sector yet. Whatever uncertainty is coming is emanating from tariff on goods. This provides some solace to the Indian IT industry. Similarly, immigration of professionals has not been touched by the Trump administration. So, there is no issue as regards sending people on H1B visa to onsite geographies like the US. However, these things will surely be touched upon by the new administration in the coming quarters. Therefore, one has to wait to see their real impact on the Indian IT industry. In the meanwhile, signs of uncertainty can be gauged from some indicators. Firstly, salary hikes of most Indian and global firms have remained subdued. Even tier-I IT firms have not doled out hikes in the post-pandemic period. Many related reports have suggested that Cognizant, whose 70 per cent of employees are located in India, has deferred salary increments to August.

Salary increments in many mid-tier IT firms continue to remain low. Secondly, the hiring trend in the third quarter (Q3FY25) indicated that broad demand recovery in the industry still remains a far cry. Usually, aggressive hiring indicates at a possible revival of demand in the subsequent quarters. Meanwhile, AI and generative AI are changing the traditional business models in many ways. Indian IT industry’s favourite leverage, which is availability of cheap talent, may not hold good in the long-run. Companies, both global and Indian, are reporting that many tech and ancillary jobs are getting automated, and thereby making people redundant. It implies that the linear relationship between revenue growth and headcount addition may break due to rapid changes in AI space. In that case, margin structure of Indian IT players will definitely come under pressure as the cost arbitrage shrinks. Well, the times seem to be changing for the Indian IT industry!