The India story: 25 years of transformation in Indian tech landscape

This series looks at India's progress over the past 25 years and future directions. The first part highlights the country's IT expertise, which became a talking point globally as the millennium began

A recent episode of The Great Indian Kapil Sharma Show on Netflix had some rather unusual guests: Infosys founder N R Narayana Murthy and Zomato founder and CEO Deepinder Goyal, who appeared alongside their spouses, Sudha Murty and Grecia Munoz.

 

Widely regarded as two of the most influential figures in India’s tech industry, Murthy and Goyal’s joint appearance marked a symbolic bridge between two defining eras of Indian technology — one that laid the foundation for India’s IT revolution, and the other that is propelling it into a digital-first future.

 

Over the past 25 years, India’s tech landscape has undergone a dramatic transformation, evolving from the Y2K-driven outsourcing boom into a global hub for technological innovation and entrepreneurship.

 

The Y2K moment

 

It wouldn’t be misleading to say that it all started at the turn of the century,

 

when India’s nascent IT services industry received an unexpected boost due to a potential global computer glitch: Y2K, or the “Year 2000” problem.

 

The fear was that as the date transitioned from 1999 to 2000, computers would interpret “00” as 1900, creating chaos for industries that relied heavily on computers, including banking. The root cause lay in the fact that programmers had historically represented years using only the last two digits.

 

Joseph Anantharaju, executive vice chairman at Happiest Minds Technologies, recalls how Y2K remediation costs were estimated to be $300-600 billion, which implied the need for approximately a million developers worldwide.

 

India’s IT sector, still in its early stages, saw a golden opportunity and seized it. The country boasted a vast pool of IT talent, which was not only more affordable than its western counterparts but also skilled in Cobol, a programming language that had largely fallen out of use in the West.

 

With the impending Y2K crisis, the world suddenly needed Cobol experts, and Indian software engineers quickly rose to the challenge. Practically overnight, they became highly sought after.

 

Infosys, which had been founded in 1981, saw its revenues soar to $200 million in the 1999-2000 financial year (FY20) — an 80 per cent growth over FY19. The company had already gone public in 1993, ahead of its larger peer, Tata Consultancy Services (TCS), which listed in 2004, and raised over $1 billion in what was then India’s largest and Asia’s second-largest IPO.

 

For Kris Gopalakrishnan, co-founder of Infosys and chairman of Axilor Ventures, a seed fund, the industry’s journey over the past 25 years has been remarkable.

 

“The Indian IT industry has experienced tremendous growth, expanding from $10 billion in 2000 to nearly $250 billion today — a 25-fold increase,” he says in a conversation with Business Standard over phone. “The Y2K challenge solidified India’s position as a trusted global IT hub.” He adds that despite various technological transitions, India remains the default destination for IT and R&D services, with nearly 1,800 global capability centres (GCCs) and five of the top 10 global IT firms being Indian.

 

Anantharaju echoes the sentiments, noting that India’s competitive advantage during the Y2K period stemmed from its vast army of engineers who could be quickly deployed to meet an immovable deadline. “Cost was a secondary consideration, though India did provide a huge advantage in that aspect as well,” he adds.

 

According to analysts, the Indian IT sector’s response to Y2K was pivotal in laying the groundwork for its future success.

 

Peter Bendor-Samuel, CEO of Everest Group, a research firm, explains, “Y2K validated the offshoring model and allowed a broader range of industries to experience it.” A long-time observer of the industry, he adds, “Once businesses experienced the lower costs and high-quality work that came with the labour arbitrage model, it laid the foundation for what is now a 30-year mega cycle in IT services.”

 

Over the years, India’s IT sector has only grown stronger, weathering challenges such as the burst of the internet bubble, the global financial crisis, and the Covid-19 pandemic. Even ongoing issues like visa restrictions have not diminished its resilience. Today, the sector employs 5.4 million people.

 

“I believe the industry is stronger than ever, giving me confidence in its future growth,” Gopalakrishnan says. “As long as technology evolves, the industry will continue to thrive, creating new opportunities with each wave of innovation.”

 

The rise of startups

 

The evolution of India’s IT services from an outsourcing destination to a trusted business partner has helped solidify the country’s status as a tech powerhouse. This shift is also reflected in the country’s booming startup ecosystem, which has seen the number of tech startups grow 15-fold over the past decade, according to the India Brand Equity Foundation, a trust under the commerce ministry.

 

The early success of India’s IT giants has played a crucial role in fostering this startup revolution.

 

It is well known how Infosys’s IPO made millionaires out of drivers, gardeners, and electricians. Today, similar stories are emerging from the startup world, where successful IPOs and employee stock ownership plans (ESoPs) are creating wealth for a new generation of Indian entrepreneurs.

 

India now ranks as the world’s third-largest startup hub, with over 31,000 technology startups.

 

Gopalakrishnan believes that, much like the IT industry, today’s startups will continue to create value and build institutions. “Innovative companies like Zoho and IBS signal a bright future. As India’s economy aims for $30 trillion, the IT sector will play a pivotal role, with new institutions emerging alongside the established giants.” He is of the view that challenges have only proven the ability of these companies to thrive and lead on a global scale.

 

AI: A challenge or opportunity?

 

As Indian IT navigates the next technological frontier, the rise of artificial intelligence (AI) presents both a challenge and an opportunity. Industry leaders agree that AI could have a transformative impact on the sector, much like Y2K did in its time.

 

Bendor-Samuel believes that the rise of Generative AI, particularly with the advent of tools like ChatGPT, has sparked a similar awakening. In many respects, the emergence of Gen AI has created a wake-up call, just like Y2K. Another similarity is that it is taking time for firms to fully understand the potential of AI and identify powerful use cases, he adds.

 

“After Y2K, it took about 10 years for larger workloads to migrate. Two years into Gen AI, we are seeing a similar pattern,” he says. “Over the next 5-10 years, we will likely see large and compelling use cases emerge, which will require significant tech services support, and over time will redefine the market and trigger a new AI-driven mega cycle.”

 

Gopalakrishnan notes that India’s biggest challenge in this AI-led future will be talent. “The key hurdle for India will be keeping pace with talent — training people on AI tools and understanding the broader impact AI will have on businesses. But this challenge also opens up new opportunities to create innovative solutions,” he says.

 

With the rise of Gen AI, Indian companies are already expanding their service portfolios to include AI-driven analytics, intelligent automation, and personalised customer interactions.

 

According to Nasscom’s Strategic Review 2024 report, the AI-related activities in the sector grew by 2.7 times in calendar 2023 compared to the previous year. Consequently, a concerted effort is underway to upskill the workforce, with over 650,000 employees being trained in Gen AI skills between 2023 and 2024.

 

Anantharaju emphasises the importance of leveraging India’s population size to ensure AI is accessible to the country’s vast population. “We need to train AI models in Indian languages and make the technology accessible to the 1.5 billion people in India,” he says. “From a services perspective, we should not hesitate to adopt new paradigms, even if they have short-term impacts, since this will establish us as a leader in AI and secure long-term market share.”

 

Analysts agree that Indian IT services hold several advantages, which help them maintain their strong position in the global tech services landscape, but they also face significant challenges that need to be addressed head-on.

 

Indian tech service firms are the most profitable in the industry and have the greatest capacity to invest in order to safeguard their dominant position, says Bendor-Samuel. So, while they may need to invest more aggressively than they currently do, this could potentially bring their margins down in the short term to fund future growth, he adds. If other companies out-invest them, they risk losing their edge and sacrificing long-term success for short-term profitability, Bendor-Samuel says.

 

Today, one of the biggest challenges for the sector is the current global uncertainty, driven by rising regional conflicts and governments around the world tightening immigration policies. Large firms such as TCS, Infosys, HCLTech and Wipro have, in recent years, increased local hiring in foreign markets but still rely heavily on talent from India to sustain their overseas headcounts.

 

Additionally, with Donald Trump’s reelection ushering in a new political order in its largest market, the United States, Indian firms’ uncertainty may have only grown.

 

“Trump’s policies could very well make it challenging for Indian IT services firms to operate in the medium term,” says Phil Fersht, CEO of HfS Research, a business research consultancy. “Trump is promising severe restrictions on immigration and raising a host of tariffs on American trade partners, which we can expect in Q1 2025.”

 

Elon Musk, he adds, has already warned of tough times ahead as we adjust to the new regime, and the Indian IT industry needs to be aware of a sea change in how business is done in the US. “The race is now on for Indian IT firms to develop their AI prowess and focus on a software-first approach to services as the people element becomes more complicated with these expected new regulations,” he says.

 

That said, for India’s IT sector, the journey has only just begun. The next 25 years could be game changers. 

Tech-tonic shift 

 

Indian IT industry crossed $250 bn milestone in FY24

 

> Hardware accounted for: $18.2 bn

> Engineering research & development (ER&D): $43.3 bn

> Software: $15.2 bn

> Business process management (BPM): $48.9 bn

> Services: $128.4 bn

 

Export revenue

 

> $199.5 bn, growth of 3.3% year-on-year 

> This is 57-58% of global sourcing share

 

Total number of tech employees: 5.4 mn

 

Tailwinds

 

> 53 new GCCs set up in 2023

> ER&D saw 48% incremental export revenue

> Domestic market grew 1.8x faster than exports

> Domestic tech services growing at 7.8%

> 950+ startups added with $6 bn funding

> 9x increase in Gen AI-related activities in calendar 2023 over 2022

> Top 3 Indian IT services firms have trained a total of 775,000 employees in GenAI