Editorial: Zoho signals IT stress

CHENNAI: When a prominent Indian tech billionaire’s social media post concludes with “Please pray for us”, it only confirms the hushed but growing disquiet about the impending crisis in the IT services sector due to the impact of Artificial Intelligence technologies.

The alarm bells have been ringing for a while now, but they are growing louder by the day.

In a post on X (formerly Twitter), the co-founder of Zoho Corporation, Sridhar Vembu, flagged the uncertainty plaguing the IT services sector due to the rising costs of AI – a whopping fourfold increase in prices of data centre servers and a substantial increase in expenditure on AI usage and GPUs.

Even though revenue is going up, the increased spending, especially capital expenditure on expensive servers, has adversely affected cash flow. Consequently, Zoho has been forced to cut its marketing budget, freeze new hiring, and pause pay raises for current employees. The resultant social media uproar cannot be dismissed as a storm in a teacup, as it is indicative of a seismic undercurrent of insecurity and anxiety among IT employees and job aspirants.

What widened the uproar was the “ghar wapsi” call given to NRIs facing visa troubles by Vembu, who is celebrated by the right-wing ecosystem as a poster boy for homegrown tech entrepreneurship. Social media users characterised the call to return to an uncertain and shrinking job market as irresponsible.

Vembu, however, argued that there are a million other things to build in India, “even if software (industry) is saturated or goes away”. Such contradictory statements, accompanied by a veneer of bravado in the face of grim reality, are characteristic of a section of pro-government, hyper-nationalistic entrepreneurs and “tech bros”. It is similar to BJP leaders exhorting youth to be job-creators instead of job-seekers while being totally oblivious to ground realities and limitations.

While the government keeps hyping up AI as a cornerstone of Viksit Bharat 2047, its policymakers cannot completely ignore the significant risks, especially relating to job losses. The spiel is that while it might result in job losses, it will also create new jobs. A Niti Aayog action plan believes that the Indian tech services industry can be in control of its destiny.

Even Vembu does not seem to share that level of optimism; his guarded response about the future is that his company is in the midst of reinvention and the “next 3-5 years will decide how our reinvention has worked”. IT industry body Nasscom has also hinted at a declining intent to hire freshers. Whether the government and the industry are putting up a brave front or not, much will depend on how they jointly respond to the AI challenge that is redefining the IT landscape.

The IT sector, no doubt, has to embrace AI technologies and be swift and nimble in its strategic adoption. Creating business models that prioritise AI is not going to be easy. The Indian IT sector has been operating on the “time and material model” based on labour arbitrage that leverages India’s lower wage levels. Transitioning to a new system will involve higher spend on innovation and research, training, and overcoming infrastructure limitations. As for the future, the jury will be out for a long time to come.