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Kolkata: The tariff of 25% which US President Donald Trump announced on July 30 accusing India of the "most strenuous and obnoxious non-monetary Trade Barriers", a whole of goods such as apparel, pharmaceuticals, petrochem products, gem and jewellery came under its purview. But information technology services, which has helped India script new prosperity and new identity over the past three decades, could be impacted by the ripple effect of the tariffs, analysts of EY India said.
"While the Indian IT services sector isn’t directly hit by the newly announced 25 per cent US tariffs, the ripple effects could be substantial. Rising input costs may prompt US companies to scale back discretionary tech spending. Simultaneously, growing unease around workforce mobility and evolving digital taxation frameworks could redefine how cross-border services are priced and delivered," Nitin Bhatt, Technology Sector Leader at EY India was quoted in the media as saying.
Moreover, the development comes at an inopportune moment for the Indian IT industry. The Indian IT sector is significantly dependent on the US markets, where a slowdown over the past few years has adversely affected the growth and profitability of the software majors. Slowdown in the US markets usually prompt companies in the world's largest economy to shrink their IT budgets, which in turn, affect the export earnings of the Indian IT services firms.
The Indian IT services majors generated single-digit revenue growth in the April-June period this year, when geopolitical uncertainty and macroeconomic stress continued casting its shadow on this sector. The EY analyst also pointed out that rising input costs might nudge US businesses to cut down on discretionary tech spends. Economists have been predicting that rising tariff wall in the US will inevitably push up prices overall in the US for both individual consumers and businesses. Bhatt noted that businesses that depend on to hybrid delivery models, geographical diversification and deploy AI at scale could be better equipped to take volatility in demand in their stride.
Even before this US announcement, TCS, the largest of Indian IT services company announced laying off more than 12,000 employees which amounts to 2% of their workforce worldwide. TCS MD and CEO K Krithivasan has cautioned that they are suffering "demand contraction". Double-digit growth will also remain elusive in this financial year, he said.
