Strange as it might sound, the current crisis facing India’s IT sector involves a series of acronyms that would be amusing for wordplay if not for the fact that they are annoying for the kind of uncertainties that hurt jobs and the economy.

Circa 2000, research firm Gartner used the term SWITCH to describe Satyam, Wipro, Infosys, TCS, Cognizant and HCL, which collectively led from India in offshore IT services, helping US clients. The term shortened to WITCH when Satyam fell to a corporate fraud and then became TWITCH as Tech Mahindra took over Satyam.

All those acquired a new meaning this week after President Donald Trump’s US administration cracked down on Microsoft and Indian offshore IT companies in what one might call a WITCH-hunt, accusing them of visa irregularities or frauds in onboarding Indian workers under the H1-B visas that lead to Green Cards that offer permanent residency in the US.

Vice President J.D. Vance led a loudmouth charge against US companies on the ground that they hired “indentured” (slave) workers from India at cheap wages to undermine American citizens. Coming in the backdrop of a US$ 100,000 fee for H1-B seekers and an up to US$ 100,000 charge for foreign students seeking options to work in the US, it is clear that severe labour protectionism is at work.

This could well be a short-term “twitch” factor as analysts point to upcoming Congressional elections in which Trump’s Republicans need to charm the Make America Great Again lobby that includes white supremacists, Christian conservatives, predominantly white workers hurt by competition from Indian counterparts, and sundry shades of anti-immigration minds.

But the difficult thing for Indian companies is that this is part of what one might call a perfect storm – a critical situation shaped by a rare convergence of several negative factors or events.

India has faced resistance from the US to its import of Russian oil in the wake of the Iran war, even as it negotiates an elusive trade deal that involves calls for increased Indian access to US agricultural products amid hits on its darling IT sector. 

India’s diplomatic sovereignty is also under severe pressure. 

On the other hand, persisting uncertainties surrounding the rise of artificial intelligence (AI) is draining Indian stock markets as global investors court an emerging technology, even as AI threatens conventional job growth in India’s IT sector because software coding is being automated.

What will all this lead to? That is the question we need to answer.

Mix Of Diplomacy And Pragmatism

Microsoft’s quick response to the new US crackdown has been a mix of diplomacy and pragmatism. Loud protests are unlikely from Indian IT majors as well because businesses usually tread with caution when politics clouds prospects. Some of the rhetoric around green cards and visas may ebb by January when Congressional elections would be over. A twitch in the business would thus be acceptable.

However, if the US tries to push further in its trade deal talks in which the latest hiccup includes a loud allegation by Tesla and SpaceX honcho Elon Musk that Indian regulators are stopping his Starlink venture, we may see a protracted problem in the trade deal in which the IT sector may be held to ransom until a round of give and take is complete.

Some, like former Democratic administration adviser Doug Rand, find it ironic that H1-B visas are referred to as vehicles for “indentured” labour because precisely these visas enable an Indian worker hired by one US company to seek jobs elsewhere while staying in the country. But such nuances are lost in a politically charged atmosphere in which a “vocal for local” approach dominates Republican politics.

The US Labor Department, which has frozen early steps towards permanent residency of workers in identified IT companies, has been investigating visa irregularities involving Indian companies, but there is little to see in it now, apart from a political witch hunt. All of a sudden, the US, once a strong advocate of liberalised service exports, is suddenly seeing threats where it used to see opportunities.  

US administrators now talk about 3 million foreign worker requests from the leading companies since 2009 as taking away jobs from American workers, blissfully ignoring the fact that US has been a champion of free-market policies. Why it should exclude high-skilled labour from its free-market love is the question India’s trade negotiators have to put before US officials in the coming days.

US government contracts also bar state agencies from hiring H1-B visa workers. Visa extensions are being slowed or blocked. High US tariffs on Indian merchandise like gems and jewellery only complicate the situation further for India.

Fog On The Windshield

All this, in the backdrop of persisting US-Iran tensions, leads to what Infosys co-founder N.R. Narayana Murthy in 2001 called a “fog on the windshield” situation in which IT companies suffered as a result of the “dotcom bubble” when highly funded Internet companies folded up after their growth figures showed big holes.

Look beyond all this, and you may yet find a case for long-term optimism, in which the sun might shine on Indian IT to clear the fog.  When and how it will happen is still hazy, but there are clear indications that the direction shows potential for a bounce-back of the kind Indian tech companies have shown in the past. The ‘dotcom’ days gave rise to new opportunities in business process outsourcing (BPO), cloud computing, and social media, alongside a mobile revolution that kept India’s IT mills buzzing.

Is AI offering a similar opportunity after a short-term freeze that hurts old-fashioned software coders? It seems so.

Global consulting firms are on to that now, even as new-age AI giants like OpenAI, Anthropic, and Google-owner Alphabet crawl and quibble over the threat of rogue AI and safety threats.

While it is true that Indian companies are freezing or slowing the hires that happened by the thousands every quarter in the good old days, they are steadily waking up to new opportunities in AI-centric work such as creation and deployment of agents (which are like software robots that perform human tasks). New business and pricing models are in the works.

A recent report by McKinsey Global Institute titled “Workforce in motion: Skills and pathways to future jobs in the United States” signalled that while AI and automation are expected to reduce demand for 36 million US jobs by 2035, new rounds of growth and AI itself will create up to 46 million new positions involving ‘occupational shifts’.

Cake Slices Baked In India

What this implies is that slices of that new growth cake would be baked in India because companies are driven by business value that includes costs, design, and skills. If US protectionism or visa curbs hurt hiring at home, American companies are likely to locate new hires in India. It has happened before.

It is almost impossible to think of Indian companies that have a legacy of four decades in software and IT not to join the big shift ahead. In fact, there is a quiet trend reversal in which Fortune 500 and other giants had set up their own “captive” global capability centres (GCCs) to do the kind of work Indian IT companies used to do. They are shifting from cost-cutting to innovation and hybrid models in which they partner with Indian companies. How to use AI is a central issue in this shift.

Wipro, TCS, and HCL have recently acquired GCC operations of giants like retailer Best Buy, insurer Guardian Life and Singapore-based agribusiness firm Olam.  Some GCCs are directly outsourcing work to Indian partners. 

Overall, India houses more than 2,100 GCCs employing more than 2.3 million professionals, generating revenues within kissing distance of US$ 100 billion. Finance Minister Nirmala Sitharaman wants the GCC number to touch 5,000 by 2030.

All this involves new ways of reinventing software and IT. But this is something Indian IT companies have done before. From clerical Y2K bug removal to advanced business consulting, from wide area networks to smartphones, both skills and devices have been changing fast over the decades—and Indian IT companies have been adapting themselves, no doubt with occasional hiccups.

In the future, we may not see armies of IT workers doing routine coding work, but a parallel evolution in India’s education system may well give rise to a new industrial ecosystem.

(The writer is a senior journalist covering a diverse range of subjects, including economy, technology, and politics. Views expressed are personal.)