Trump Tariffs and Indian IT Services: Risks, Impact, and Outlook

When President Trump made a comeback, little did the world realize that he would unleash global economic change at scale. President Trump has been in office for the last 2.5 months; the speed at which he has impacted immigration, trade, and jobs has been tremendous. On the home front, as per Nasscom, the Indian IT services industry is expected to grow by 5.1% to $282.6 billion in FY25.

The estimated size and growth of Indian IT services data was released by Nasscom (Annual Strategic Review 2025) in February 2025. It stated that the tech industry in India added $13.8 billion in incremental revenue, taking the total industry revenue to over $282.6 billion (including hardware) in FY2025E. Sub-sectors like Engineering R&D, with GCCs spanning across Services and BPM, have emerged as key growth hotspots. Digital Engineering is expanding into sectors like BFSI, Healthcare, and Retail, with nearly two-thirds of large deals centered on this shift. In 2024, the industry housed over 1,750+ GCCs, reflecting a growing emphasis on high-value services and product engineering. The industry’s export revenue now indicates an equal revenue split between global MNCs (including GCCs) and Indian service providers.

Interestingly, Nasscom in its outlook stated that the tech sector is projected to achieve the milestone of $300 billion in revenue by FY2026. Will Indian IT achieve that target? It remains to be seen in light of the new tariffs imposed by Trump and the cascading impact on core industries.

Indian IT: Headwinds Ahead

As a prelude to tougher days ahead, on April 3rd, the Nifty IT index plunged 4.2%, signifying its steepest single-day fall in recent times. While fluctuations are part of the game, what’s concerning now is the timing. The Trump tariffs come at a time when Indian IT has just entered FY26 and signed off on a weak Q4 of FY25. For India, IT services are polarized in the U.S. geography. While over the years, as part of a de-risking strategy, IT services companies across Tier 1 and Tier 2 have embarked on global diversification—with Europe emerging as the next big market after the U.S.—still, as per available data, over 60% of revenues of Indian IT services come from the U.S. That’s a huge slice of the pie.

Now the question is—with the new tariffs, tightening visa rules, and local hiring mandates (hallmarks of the Trump playbook)—the pressure compounds. Over and above the possibility of a U.S. recession, the impact of tariffs is sure to hurt U.S. businesses across industries. This is indeed a very concerning factor for Indian IT and inserts a layer of ambiguity in terms of proposed IT spends U.S. companies have planned for 2025 and beyond.

Reflecting on the evolving scenario, Ramkumar Ramamoorthy, Partner at Catalincs, a tech growth advisory firm, says, “The higher-than-expected tariffs, retaliatory actions by several countries, and DOGE initiatives are bound to induce higher uncertainty, driving deceleration in revenue growth and employment generation. Adding to the niggling demand woes, this uncertainty leading to indecision could be the biggest enemy of budgets and discretionary spend. If these actions continue for a while, it would be foolhardy not to expect first-order as well as second-order impact in the short to medium term, negatively impacting spending decisions.”

Ramkumar also believes that, “The increased tariffs could lead to higher inflation and slower economic growth globally, with an increased risk of recession in the U.S. and other developed economies. The fact that these actions have been taken at the beginning of the year could lead to deferral of decisions and impact revenue growth in the seasonally strong quarters of June and September. While no industry will be spared the impact because of increased macro uncertainty and a pull-back in discretionary spend, Manufacturing, Logistics, and Retail will specifically face the immediate brunt because of disruption in global supply chains and higher cost structures.”

The U.S. Recession - the Cloud That’s Hard to Ignore

The new tariffs—part of Trump’s bold "America First" pitch—are not directly aimed at software services. But the problem isn’t what's taxed—it’s what the tariffs signal: a potential slowdown in the U.S. economy and a tightening of global trade. The impending fear of a recession in the U.S. creates a perfect stage for a margin squeeze, as companies will tighten spending on CAPEX, shore up their reserves, and go into wait-and-watch mode until they get a sense of how to balance trade in the post-tariff regime.

In the past few quarters, firms have already been juggling rising wage costs, attrition management, and reskilling investments for next-gen technologies like AI and cloud. The tariff tremors only deepen the financial uncertainty.

The Client Confidence Factor

Multiple analysts noted that U.S. clients—especially in banking, retail, and manufacturing—are beginning to show signs of hesitation.

“Deal timelines are getting stretched, and discretionary spending is under review,” noted a recent report from Goldman Sachs, which also cut India's FY26 GDP growth forecast from 6.3% to 6.1% in light of the U.S. trade turbulence. If recession fears elevates, the Indian IT firms will be among the earliest to feel the likely spending freeze.

In a recent CNBC-TV18 report, leading analysts expressed concerns regarding the impact of President Donald Trump's newly announced reciprocal tariffs on the Indian IT sector. For instance, Bernstein warns that these tariffs could lead to a potential recession, delaying IT spending and tightening budgets. They reference the 2008 financial crisis, during which major IT firms experienced significant revenue declines. Let’s look at some key takeaways from the CNBC-TV18 report.

Bernstein predicts flat growth for the sector in FY26. JPMorgan raises the critical question of when the IT sector will bottom out. They outline a bear case scenario involving no revenue growth for companies such as Infosys, TCS, and HCL Tech in FY26, coupled with no margin expansion. Meanwhile, Kotak highlights that the current uncertainty may delay spending and impact the June quarter, which is typically strong for IT companies.

Rethinking the American Dream

For years, Indian IT's growth engine has been built on the U.S. market—through a combination of offshore delivery, global talent, and scalable pricing. But as geopolitical tides shift and Trump’s campaign gains traction, the conversation inside Indian boardrooms is changing.

So given the uncertainty that’s prevailing, one can expect to see:

• Renewed interest in Europe and Asia-Pacific regions for geo-diversification
• Speeding up automation and AI initiatives to drive productivity at lower costs
• A likely uptick in M&A activity in the U.S., as firms look to deepen local footprints and hedge against future tariffs
• Possibility of Indian IT shifting from the Pyramid model to a Diamond model, with more resources in the middle layers, and leaner bottom and top

What’s Next for Indian IT Services?

Markets, of course, will bounce. The Nifty IT index is resilient, just like the sector it represents. But beneath the charts, numbers, and tickers, there’s a very real sense of vulnerability that’s hard to ignore.

This isn’t just about tariffs or Trump. It underscores the reality of how deeply India’s digital economy is wired into the global one—mainly the U.S.—and how quickly political tremors in Washington can disrupt business models in Whitefield or Gurugram. As the old adage says... when America sneezes, the world catches a cold. For Indian IT, it's time to build a stronger and an all terrain immune system.

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