US Tariffs Squeeze Retail, Manufacturing IT Growth
US tariffs are weighing heavily on IT firms, with retail and manufacturing among the hardest-hit sectors as clients delay key projects.
US Tariffs Squeeze Retail, Manufacturing IT Growth
The weight of rising US tariffs is being acutely felt across India’s IT services sector, with retail, manufacturing, and logistics emerging as the most vulnerable verticals. As American trade policies grow more protectionist, tech outsourcing giants like Infosys, TCS, and Wipro are seeing project delays and revenue dips—clear indicators of how deeply interconnected global economics and enterprise tech strategies have become.
Retail and Manufacturing Under Pressure
Infosys, one of India’s flagship IT firms, revealed a 2.6% year-on-year dip in its retail segment for the March 2025 quarter—this vertical contributes roughly 13.3% to its overall revenue. The decline underscores a broader trend: consumer-focused industries, which rely heavily on predictable supply chains and seasonal spending, are pulling back on discretionary IT spending in response to trade disruptions.
At TCS, the story isn’t much different. CEO and Managing Director K. Krithivasan recently pointed out that discretionary project delays in the US are rising, especially in consumer goods, travel, transportation, and hospitality. “The drop in consumer sentiment in February, coupled with escalating trade barriers, created a ripple effect,” Krithivasan noted. “Retail, CPG, airlines, and hospitality are among the hardest hit.”
Meanwhile, Wipro’s numbers paint a similarly sobering picture. Consumer tech dipped 1.3% quarter-on-quarter, while its manufacturing and resources business dropped 7% year-over-year, despite a slight 1.1% sequential uptick. CEO Srini Pallia confirmed that a major transformation project had been put on hold, citing client caution amid persistent global uncertainty.
BFSI and Healthcare Show Mixed Signals
While some sectors are bearing the brunt of the tariffs, others remain relatively resilient. The banking, financial services, and insurance (BFSI) segment—long a stronghold for Indian IT—saw muted but positive growth for TCS (2.5%) and relatively stable performance across the board. However, insurance has begun to show signs of softness.
Healthcare, on the other hand, appears less insulated. Wipro reported a 3.1% sequential drop in its healthcare business, a figure that hints at sector-wide belt-tightening despite growing demand for tech-driven solutions in patient care and pharmaceutical logistics.
The Tariff Domino Effect: Caution and Cost-Cutting
A recent Jefferies report emphasized the long-term risks posed by tariff uncertainties, particularly for companies that depend on complex, global supply chains. The report predicted that sectors like retail, logistics, and manufacturing—already facing inflationary headwinds—will remain the most susceptible to demand volatility.
Srini Pallia of Wipro echoed this sentiment, stating that while clients still value digital transformation, they are now prioritizing cost-efficiency and speed over large-scale reinvention. “There’s a renewed focus on AI-driven efficiency, but it’s being approached with extreme caution,” Pallia said.
Infosys CEO Salil Parekh reinforced the cautionary tone, citing a highly unpredictable environment. While digital adoption remains a long-term trend, short-term volatility is prompting many clients to reevaluate their IT investments, especially in consumer-focused sectors.
AI, Efficiency, and the Uncertain Road Ahead
Interestingly, the rise of AI—once seen as a boon for IT companies—is also playing a paradoxical role. As automation and generative AI tools become more accessible, some clients are reconsidering the scope of outsourcing altogether. According to market analysts, this shift could compress revenue in the near term, even as it opens up new opportunities for leaner, smarter service models.
Yet amidst the turbulence, there’s a silver lining. Companies that can pivot quickly—offering AI-led solutions, agile delivery models, and cost-saving innovations—may emerge stronger from this downcycle. The demand hasn’t vanished; it’s simply being rechanneled through a more conservative, results-driven lens.
Conclusion: Flexibility Is the New Competitive Edge
The impact of US tariffs on Indian IT firms underscores a deeper truth about the global tech landscape—adaptability is everything. As protectionist policies reshape trade dynamics, IT companies serving retail, manufacturing, and logistics must recalibrate their approach to meet shifting client expectations.
By leaning into automation, bolstering client trust, and demonstrating clear value in uncertain times, these firms can navigate the headwinds ahead. While the road may be bumpy, those who stay agile and client-centric are likely to find opportunities even in a cooling market.
Disclaimer:
This article is intended for informational purposes only. It reflects the current economic and industry trends as of the time of writing and should not be construed as financial advice. Always consult a qualified professional for guidance specific to your business or investment decisions.