Decoding Indian IT industry: From Cobol to Copilot

In 1980s, Indian IT exports were barely USD 10 million. This year they are estimated to cross USD 246 billion. The journey from its humble beginnings to its current stature today is marked by several transformations.

Battling Darkness: A Nation’s Economic Sovereignty is Questioned

June 1991: India was facing its biggest challenge since Independence. The country’s forex reserves were barely sufficient to meet 2 weeks of its imports. India had walked into this crisis with its eyes wide open - systematic disregard for fiscal discipline and political instability had already weakened the system, leaving it exposed when the Gulf War spiked oil prices and expat remittances fell. The Government had to pledge the country’s gold to get emergency loans of around USD 600 million. The pledging of gold was a national embarrassment and the country was determined to course correct. Budget of 1991 was the harbinger of these changes. The Rupee was devalued, License Raj abolished, import duties cut, Foreign Direct Investment invited– a closed economy was opening up. The stage was unexpectedly set for India’s underdog – the fledgling IT sector.

A Global Backoffice Emerges: 1992-2000

Post policy reforms, software exports became lucrative. With the rupee devalued, billings in dollars became attractive. India had English-speaking talented engineers - a Bangalore engineer cost a fraction of a Boston engineer. TCS, Infosys, Wipro, Satyam, HCL- the era of the “Big Five” began. Policy benefits like tax holidays, STPIs, import-duty relaxation spawned an entire ecosystem of Indian IT firms. By mid-90s, Intel, Microsoft and Oracle set up India development centres. Mid-90s to late 90s also witnessed internet evolution – this meant that a mail sent from Chennai reached California in minutes. The world had never felt this connected. Days and nights began to blur – India worked round the clock and the sector grew at a CAGR of 40%. Bangalore, Pune, Gurgaon, Hyderabad – MNCs set up captive centers, supporting everything from call centers to back-office business processes.  

The Y2K threat arrived and for the first time the global IT infrastructure was facing systemic collapse. A significant section of global business ran on COBOL and mainframes which were at the highest risk of collapse due to the Y2K bug. The Indian IT industry, with its vast pools of trained engineers with extensive knowledge of COBOL and mainframes, was ready to review and rectify billions of lines of legacy code – at a fraction of the cost. Codes revised, tests run, systems restored, mainframes running smoothly – the global transition to Y2K was smooth and the Indian IT sector earned its credibility as a trusted partner. The engineer who diligently reviewed line after line of code for a bug is the engineer you go back to when you want new code written. Y2K cemented client relationships. Indian IT exports crossed USD 6.2 billion by 2000.

Surviving the dot com bubble burst

March 2000: Technology boom was not limited to India. The world was going through an information technology revolution and the markets were optimistic. The NASDAQ index rose from 1000 points in 1995 to 5000 points in 2000. “Dot com” company stocks were rising rapidly. In the rush to own a piece of the tech boom, investors abandoned the most basic rule of investing — never pay more than what an asset is intrinsically worth.

The bubble burst when tech companies posted losses and investors realised that “dot com” does not automatically translate to profits. Naive investors who had put their life savings into dot com stocks lost everything overnight. Between March 2000 and October 2002, the US market corrected itself – market value of 5 trillion dollars of tech-related stocks was wiped out. Many companies went bankrupt and the ripples reached India too. New projects dried up, cost cuts led to severely reduced margins, hiring freezes and lay-offs followed. The IT sector experienced a slowdown but did not crash. Indian firms were forced to rethink their strategies. The cost arbitrage was still working in their favour; they sweetened the deal with quality arbitrage too. They diversified their offerings to include remote infrastructure management, ERP implementation, business process outsourcing. The strategies worked - the sector continued to grow but not so rapidly.

Powering the World’s Digital Economy: 2002 to 2026

2002 to 2007 was called the Golden Age of Indian IT sector. Large process driven outsourcing deals, offshore development centers, R&D development hubs, 24/7 support centers sprang up resulting in export revenue hitting USD 40 billion by 2008. The global recession, the Satyam scandal caused temporary disruptions but the sector absorbed the blow and moved on. The sector had already learned its lesson in dot com bubble crash. They had optimised their delivery models; balance sheets were conservative with high cash reserves to meet contingencies.

The era of smart phones, clouds and digital transformation arrived. Indian IT firms pivoted towards cloud, agile, DevOps and user experience, while global capability centres in cities like Bengaluru and Hyderabad moved from support to owning products and platforms. Even Covid lockdown couldn’t slow down its run – exports hit USD 150 billion in FY 21. The sector, which directly hires around 4.5 million people, added 138,000 new employees in 2021. India Inc worked remote from home to provide solutions ranging from cyber security to scaling of e-commerce.

2023 marks the beginning of the generative AI. Work that once required large teams is now being done or assisted by AI. Work is faster and efficient. The cost arbitrage is now questionable. The disruptor this time is not a distant macro event; it sits inside the very tools and workflows the industry depends on. Upskilling has moved from HR slogan to survival strategy.

Indian IT firms are now building on top of platforms like Gemini, Copilot and Claude, folding them into coding, testing, documentation and support, while nudging engineers to move up the stack into design, supervision and scaling of AI‑driven systems. NASSCOM's own projection states that AI currently contributes only 3–4% of tech revenues as of FY26 – the scope for expansion is large. At the same time, India is not alone in the race: the Philippines in BPO, Eastern Europe with deep tech talent, and Southeast Asia on cost are all sharpening their playbooks, even as global capability centres double down on India for AI, product and platform work out of cities like Bengaluru and Hyderabad. 

My Take: The Indian IT sector has changed the Indian landscape in more ways than one. From increasing India’s forex reserves, to ushering in all-round economic prosperity – the sector has been crucial in India’s growth story. As Bangalore became Bengaluru, I saw a slow-paced city of gardens and lakes become a fast-paced IT startup capital filled with IT Parks and skyscrapers. The city that once symbolised India's post-colonial leisure economy now generates more foreign exchange than entire manufacturing sectors.

The IT sector liberated India’s middle class – education was the only capital needed to find material prosperity and an upwardly mobile lifestyle was well within reach if you could crack this code. And it’s not just the middle class who are reaping the benefits of this sector. Technology has completely embedded itself in everyday life – from local vegetable vendors who flaunt scanner code for payments to a rural student using AI to revolutionise a traditional rural craft – technology has changed Indian lives. And as for the investors who held stocks of the “Big Five”, I don’t think I need to spell out the journey of their wealth creation.

Today, the future is uncertain for the sector with AI being the disruptor. The sector has survived many scares before but this time the threat is internal. Hiring freezes, lay-offs, organisational restructuring – the sector has begun to strategize. Geopolitical implications especially with H-1B visas (or the lack of it) are influencing how the IT sector works. While tech giants like Google, Anthropic continue to establish captive centers in India, the larger question is – will AI shift the global “one big hub” model towards a more distributed, locally tailored network of hubs. What remains to be seen is whether AI becomes the force that finally stops the juggernaut — or the fuel that sends it hurtling into an entirely new orbit."

This article is part of An Accountant Writes, Vol 1, Issue 3 — March 2026. Read the full issue