Is India’s IT sector, like a labourer content with daily wages, ignoring the gold mine within reach?
IT industry transformed India’s global image — from a land of snake charmers to an IT powerhouse. It has created hundreds of thousands of white-collar jobs and generated $160 billion in software exports in FY2024.
Yet, this article is not about the successes — it questions what the IT sector could have achieved, given India’s talent, opportunities, and expertise.
As the US, China, and even smaller nations push ahead in deep tech, India remains trapped in outsourcing and human resources supply game. India’s IT industry looks content being the world’s back office while the real tech giants chase the future through world-class software products, AI breakthroughs, and deep-tech start-ups.
The constraints
We explore eight factors limiting India’s IT sector.
Low on innovation: The industry mainly follows a “body shopping” model where success is measured by the number of engineers deployed at low cost rather than by creating new intellectual property. Despite capturing 55 per cent of the global outsourcing market, India has not produced world-class software products like Google, Microsoft, or OpenAI. Major companies such as TCS, Infosys, and Wipro have grown into billion-dollar enterprises, but they are primarily human resources and service providers, not technology innovators.
No long-term technology vision: Indian IT companies avoid risks, favouring low-margin outsourcing over high-risk, high-reward innovation. Firms like Infosys and TCS prioritise distributing cash reserves as dividends rather than funding long-term R&D. They are within their rights to do this, but this mindset explains while China builds low-cost AI models, Indian IT firms do not make significant investments in AI, blockchain, or automation despite sitting on billions in cash reserves.
AI Blind Spot: DeepSeek’s success exposes a deeper issue — India isn’t just lagging in AI model development; it is not even clear on the resources needed.
When OpenAI CEO Sam Altman claimed India couldn’t afford to build Large Language Models (LLMs) due to high cost, industry leaders agreed. Yet, DeepSeek, an open-source model, proves that training an AI model with unique datasets can cost under $7 million — far less than what Western firms spend.
India has vast amounts of data, and much of what’s missing is cheaply available on the dark web. Yet, it has failed to develop its own specialised AI models. For example, Indian languages are severely under-represented in AI datasets, making up just 3 per cent of web data despite India having 20 per cent of the world’s population. This gap means global AI models fail to understand Indian users, reinforcing the need for India to build its own LLMs.
But instead of taking action, industry leaders remain silent, debating 70-hour workweeks while dismissing India’s ability to develop LLMs. If this persists, India will remain dependent on foreign AIs. Mind-set and not the cost will be a factor.
GCCs are regular businesses that do not merit glorification. Global Capability Centres (GCCs) are outsourcing business by another name. Multinational companies set up their own GCCs in India, bypassing Indian IT firms and cutting into their revenue.
While GCCs hire Indian engineers directly, the real innovation, patents, and product development stay under foreign control, keeping India as a back-end hub. Some GCCs may also be exploiting transfer pricing loopholes, reporting minimal profits in India while shifting real earnings elsewhere.
Reliance on American digital firms: China developed its own tech giants to compete with Western platforms — Baidu as its Google, WeChat replacing WhatsApp with messaging and payments, and Weibo mirroring Facebook and Twitter. Platforms like Bilibili and Tencent Video rival YouTube, seamlessly integrating e-commerce and digital payments into daily life.
India, in contrast, was better positioned to build its own tech ecosystem, given the early success of TCS, Infosys, and Wipro. But while China protected and nurtured its tech industry, India welcomed global firms, leaving little room for home-grown competitors. As a result, India remains reliant on foreign technology instead of developing its own digital giants. The lack of interest by Indian firms must have played a part in policy formulation.
Low Data centre capacity: India’s data centre capacity is just 1GW forcing hosting of most data on foreign servers. In contrast the US capacity is 20GW, with another 20GW under development. Without adequate infrastructure, India keeps most data abroad. High reliance on foreign AI data centres will reduce India’s control over AI and other data-driven innovation.
Weak Start-up culture: India’s most successful start-ups — Zomato, Swiggy, Blinkit (quick commerce) and Paytm, PhonePe, Google Pay (fintech) — focus on services rather than solving deep-tech challenges. Unlike the US and China, where venture capital backs high-risk, deep-tech innovation, Indian investors prefer safe, short-term returns from IT services.
This has led to a lack of real innovation, with most start-ups repackaging existing technologies rather than building breakthrough solutions. Instead of celebrating unicorn valuations with negative cashflows, India must prioritise software innovation. The government should support Indian tech start-ups through procurement policies, awarding major contracts to domestic firms rather than relying on foreign tech giants.
Nasscom risks becoming irrelevant to India’s technological future. Nasscom claims to be the voice of India’s IT industry but largely functions as a lobbying group. While it publishes grand reports on India’s future as a $35-trillion economy, its website lacks even basic data on IT and BPO exports.
We may recall the pioneering role of its first president, the late Dewang Mehta (1991-2001), under whom Nasscom shaped India’s IT sector, boosted software exports, and positioned India as a global outsourcing hub.
The Path Forward
True leadership in IT will only come when India embraces a culture of innovation, risk-taking, and long-term vision. While continuing IT services, India should invest in AI and deep tech, promote indigenous start-ups, and create an ecosystem encouraging risk-taking and long-term innovation.
We hope Nasscom takes these issues forward.
The writer is the founder of Global Trade Research Initiative