Amid gloom caused by global economic headwinds and geopolitical challenges, the Indian IT industry managed to weather one of the toughest years in recent times as clients pressed a pause button on IT spending.

Besides, reports of layoffs and poor hiring numbers have caused concern among the public. Amidst these difficulties, the industry demonstrated resilience, adapting to new realities and capitalising on emerging trends such as AI and Generative AI.

As the year draws to a close, a sense of cautious optimism prevails, with key indicators pointing towards a stronger outlook for 2025 and beyond for the industry.

The year began with considerable uncertainty, as According to Phil Fersht, CEO and Chief Analyst of HFS Research, observes. He said that “2024 began as one of the most challenging years ever for Indian tech firms, with decreasing demand from the US and Europe and painful price erosion.”

Dip in tech spending

Echoing similar sentiments, Nasscom’s annual review at the beginning of the year had said, “With around 50 per cent slide in tech spending and 6 per cent decline in tech contracts in 2023 globally, the technology industry in India, similar to global markets is currently navigating a tough terrain.”

“Growing at 3.8 per cent the industry added $9.3 billion incremental revenue, taking the total industry revenue to over $253.9 billion (including Hardware), in FY2024E (estimated)” it stated.

Revenues for the third quarter ending December 31, 2024, is pegged to grow by 3.1 per cent over the previous quarter. “The year 2024 ended with a much more positive outlook for the coming year,” it said in its review of the December quarter.

According to IDC’s projections, global tech spending is expected to grow by 4.4 per cent in 2024 and increase by 5 per cent in 2025, reflecting the shape of things to come. This shift can be attributed to several factors.

Firstly, the industry demonstrated an impressive ability to adapt and innovate, as Rajesh Nambiar, President of Nasscom, pointed out.: “The industry has shown remarkable resilience in the face of global macroeconomic uncertainties, geopolitical tensions, and supply chain disruptions,” he said.

Recent research by GlobalData suggest that India bucked the global trend of falling deal values and sizes. Research firm Tracxn Technologies said that India tech space saw 37 IPOs in 2024, a significant 76.19% increase over 21 IPOs in 2023 and 94.74% higher than 19 IPOs in 2022. The year witnessed tech space attracting 20 $100 million plus rounds when compared to 18 such rounds in 2023.

The rise of AI and GenAI

The explosive growth of these technologies is creating significant opportunities for Indian IT firms. Fersht stated, “2025 will be the year of AI and algorithm regulation in the US – and the rise of guardrails-as-a-service, which will create a huge opportunity for Indian heritage IT firms investing in their AI capabilities.” This demand for AI expertise will require companies to adapt their workforce strategies, as AI Agents will start to weaken hierarchies in 2025, because traditional experience-based advancement is dying.

As software solutions become increasingly sophisticated, the role of IT service providers is evolving. Fersht argues, “In 2025, India’s IT services firms must become value-added ecosystem orchestrators to help enterprises unlock new forms of value.” This will require companies to curate specialised domain and industry expertise combined with an array of meaningful tech, capital, and academic partners.

Geopolitical tensions and the pursuit of tech sovereignty are leading to disruptions in global supply chains. This presents both challenges and opportunities for Indian IT firms. As the report highlights, companies will accelerate efforts to diversify supply chains away from dependency on any single geography, creating new opportunities for companies to capitalise on government incentives for local production.

These trends, coupled with an anticipated improvement in global economic conditions, underpin a more optimistic outlook for FY26.

Nambiar notes, “Key trends such as the accelerated innovation of AI and GenAI, sustained growth in tech investments, expansion in the domestic market, growth in GCCs, a heightened focus on engineering R&D, and a thriving and diverse deep tech start-up ecosystem collectively point towards a promising growth trajectory.”

Some shortcomings

While the outlook is positive, the Indian IT industry must navigate several challenges to realise its full potential.

The rise of AI is transforming the workplace, requiring companies to rethink traditional hierarchies and compensation models. Attracting and retaining top talent, particularly in specialised areas like AI and data science, will be crucial.

As the demand for computing power explodes, sustainability will become a critical concern. Companies will need to invest in energy-efficient technologies and practices to mitigate their environmental impact.

The year 2025 promises to be a pivotal one for the Indian IT industry. It will be a year of transformation, as companies adapt to the new realities of the digital economy. It will also be a year of growth, as the industry capitalises on the opportunities presented by AI, cloud computing, and other emerging technologies.

The Indian IT industry has a proven track record of resilience and innovation. By embracing the challenges and opportunities that lie ahead, the industry is well-positioned to continue its growth trajectory and solidify its position as a global leader in the technology sector.