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Indian IT demand fades as AI and cloud take centre stage

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For over three decades, India's information technology sector has been a remarkable story of growth and global ascendancy. From a handful of service providers in the early 1990s, the industry has ballooned into a $250 billion behemoth, employing more than five million people and earning worldwide acclaim for its delivery prowess. But as fiscal 2026 gets underway, the sector faces an inflection point, caught between a slowing growth trajectory and disruptive technological forces, most notably artificial intelligence (AI).

THE WANING OF A GOLDEN ERA

After two decades of near-linear expansion averaging double-digit growth, Indian IT now confronts what could be its third consecutive year of subdued performance, with growth expected to linger in the lowto mid-single digits. This lull is unprecedented in the sector's modern history.

The confluence of factors is sobering: global economic uncertainties, tariff developments in the United States, and a general cooling in discretionary IT spending - eroding optimism. Tata Consultancy Services, the industry's largest player, has publicly acknowledged delays in project approvals and client decision-making, signaling that the tentative recovery signs from fiscal 2025 may have been short-lived.

Across the board, forecasts for IT services spending have been downgraded. The much-touted 4%-5% growth expectation for fiscal 2026 now appears optimistic at best. While sectors such as banking, financial services and insurance (BFSI) had initially sparked hopes of a rebound, momentum has faltered as uncertainty mounts, casting a shadow over retail, manufacturing, and other verticals.