Sridhar Vembu, co-founder of Zoho, has issued a sharp warning about the future of India’s software and IT services sector. According to him, the industry is facing a deep structural transformation—not just a cyclical slowdown or a challenge posed by artificial intelligence (AI), but a profound shift that could reshape the landscape for decades to come.
More Than Just AI: The Real Threat Lies Deeper
In a recent post on X (formerly Twitter), Vembu expressed that the current turmoil in the software sector isn’t simply a phase of economic downturn or the result of AI disruption. “What we are witnessing is not just a cyclical trend,” he wrote. “Even without the uncertainty driven by tariffs or trade issues, trouble was inevitable.”
He emphasized that the global software industry, both in terms of products and services, has been plagued by long-standing inefficiencies. These inefficiencies, he argued, have been allowed to grow due to decades of asset bubbles, masking the actual decline in productivity and innovation.
India’s Dependence on an Inefficient Model
India, as a major exporter of software and IT services, has not only accepted these inefficiencies but has become deeply dependent on them. “Sadly, in India, we have come to rely on these inefficiencies. Millions of jobs are now linked to them,” Vembu remarked.
He also raised a concern that India’s tech sector has absorbed a significant portion of talent that could have otherwise contributed to critical areas like manufacturing and infrastructure development. This skewed distribution has, in his view, weakened the country’s long-term economic resilience.
Automation and AI Will Accelerate the Shift
While many focus on how AI and automation are reshaping the software industry, Vembu believes that AI is merely accelerating a shift that was already underway. The real threat lies in the foundational flaws of the industry.
Industry experts agree that AI tools are making software development faster and more efficient, which means that large teams may no longer be necessary. This can potentially reduce the economic impact of software firms, especially in countries like India that have built their economies around software exports.
Why Did Vembu Step Down as CEO?
It is worth noting that Sridhar Vembu stepped down as CEO of Zoho in January 2025 to focus more on research and development (R&D). Even then, he had emphasized the need for innovation and foresight, stating that the industry was at a pivotal turning point.
Time to Rethink Strategy
According to Vembu, the strategies that worked in the past three decades may not guide the industry successfully into the future. He urged industry leaders in India to re-evaluate their assumptions and craft long-term plans that reflect the new realities.
“If we don’t address the core structure of our industry, its efficiency, and the way we deploy human capital, we may face a major economic and employment crisis in the next decade,” he warned.
What Could Be the Way Forward?
- Focus on Efficiency: Move beyond service-based models and build high-quality, product-driven solutions.
- Invest in Manufacturing and Infrastructure: Rebalance the economy by supporting other productive sectors.
- Embrace AI as a Partner: Rather than resisting AI, leverage it to create new kinds of jobs and skill-building opportunities.
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