Mumbai, July 31: US President Donald Trump on July 30 announced a 25% tariff on Indian goods effective August 1, 2025, citing high Indian tariffs, non-tariff barriers, and India’s energy and defense trade with Russia. This move, part of Trump's "Liberation Day" trade strategy, also includes an unspecified penalty for India's Russia ties. The tariffs have rattled markets and raised questions about the future of India's export-heavy sectors, including the Indian IT industry which is heavily reliant on US clients.

India's IT exports are dominated by software services, cloud solutions, business process outsourcing, and digital transformation work for US businesses. There are concerns that the new US tariffs might cause further layoffs at Indian tech companies and lead to hiring freeze. While IT services are exempt from direct tariffs, analysts warn that the broader economic impact of the tariffs could indirectly hit the sector. Donald Trump Lashes Out at India-Russia Ties, Calls Their Economies ‘Dead’ Amid Trade Tensions.

How the Indian IT Industry Could Be Affected by Donald Trump’s 25% Tariffs

Rising Costs for US Clients

With American importers now paying 25% more for Indian goods, overall costs for US businesses rise. This could prompt American companies to cut discretionary spending on IT services. This could reduce demand for Indian IT outsourcing, particularly for non-essential projects. Will AI Take Away Your Job? Microsoft Study Identifies 40 Jobs AI Will Replace and 40 That Remain Safe, Full List Here.

Market Reaction and Stock Volatility

The announcement of the tariffs has already triggered a selloff in Indian IT stocks, with the Nifty IT index dropping over 3.58% in a single trading session. Major IT firms like Coforge (-6.74%), Mphasis (-5.90%), LTIMindtree (-4.31%), Wipro (-3.67%), Tech Mahindra (-3.46%), HCL Tech (-2.93%), TCS (-2.89%), Infosys (-2.70%), and Persistent Systems (-2.63%) saw declines, reflecting investor concerns about potential revenue impacts. Companies with high U.S. revenue exposure, such as Mphasis (82%), Persistent Systems (81%), LTIMindtree (75%), and HCL Tech (65%), are particularly vulnerable.

Pressure on Margins and Pricing

The National Association of Software and Service Companies (NASSCOM) highlighted that the tariffs, combined with rising investments in AI and generative AI, could pressure pricing, potentially leading to flat or declining margins for IT firms. This is compounded by existing challenges like reduced discretionary spending and a slowdown in large deal signings.

Slowdown in Next-Gen Tech Investments

US clients may postpone investments in emerging technologies like AI, cloud computing, and digital transformation due to recession fears and budget constraints. This could stall large deal signings, a critical growth driver for Indian IT firms.

Ripple Effects from Other Sectors

While IT services are exempt from direct tariffs, the broader 25% tariff on goods (e.g., electronics, gems, and jewelry) could disrupt supply chains and increase operational costs for U.S. clients in other industries, indirectly affecting their IT budgets. For example, the electronics sector, which faces significant tariff exposure, may reduce tech investments, impacting IT service demand.

Workforce Mobility and Digital Taxation

Evolving U.S. policies on workforce mobility (e.g., H-1B visa restrictions) and digital taxation frameworks could further complicate cross-border IT service delivery, increasing costs and reshaping pricing models.

The Indian IT sector will need to adapt quickly to a volatile, protectionist, and uncertain global environment, including potential job disruptions and realignment to avoid over-exposure to the US market.

(The above story first appeared on LatestLY on Jul 31, 2025 11:51 AM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website latestly.com).