In a candid and sobering assessment of India’s software sector, Sridhar Vembu, the founder and CEO of Zoho Corporation, has warned of an impending "fundamental reckoning" that could challenge the very foundations of the country's tech industry. Speaking at a recent technology leadership event, Vembu highlighted deep-rooted structural issues and an overreliance on services-based revenue models that, in his view, make the industry vulnerable in the face of global shifts and technological disruption.

Overdependence on Services

Vembu, a long-time advocate for product innovation and rural development, criticized the software industry's persistent tilt toward IT services, noting that while it has delivered significant economic growth over the decades, it has also left India lagging in core product innovation.

“We’ve spent years building systems optimized for outsourced services, not for the creation of intellectual property. The danger is that we may have optimized ourselves into irrelevance,” Vembu said. “What worked for the last 30 years may not work for the next 10.”

His comments come at a time when the global tech ecosystem is rapidly pivoting towards AI-first products, deep tech solutions, and homegrown innovation—areas where India’s representation remains limited despite its vast talent pool.

The Rise of AI and Automation

One of Vembu’s core concerns centers on the growing dominance of artificial intelligence and automation, which threaten to upend traditional software development and IT services. He emphasized that Indian companies risk being displaced if they do not pivot to create proprietary technologies and platforms.

“With generative AI and automation redefining how software is built, deployed, and maintained, the traditional services model is becoming obsolete,” Vembu said. “We cannot simply remain the world's back office when the front office is changing this fast.”

He urged Indian firms to invest heavily in R&D, build globally competitive products, and take risks in emerging technologies such as AI, edge computing, and indigenous chip design.

Talent Drain and Urban-Centric Development

Vembu also lamented the ongoing migration of talent to urban centers and overseas markets. He reiterated his long-standing belief in decentralizing technological development to India’s villages and tier-2 and tier-3 towns—a principle Zoho has adopted by establishing offices and R&D centers in rural Tamil Nadu.

“If we concentrate all our talent in a few metro cities or export them abroad, we miss out on the larger picture,” he said. “We need to create an ecosystem where innovation is not just happening in Bengaluru or Hyderabad but also in places like Tenkasi and beyond.”

A Call to Action

Despite his concerns, Vembu remains optimistic that India can rise to the occasion—if it acts decisively.

“This is not the end. It’s a wake-up call,” he said. “We need to move from being consumers and coders to creators and visionaries. The next decade belongs to those who dare to build.”

Industry observers have noted that Vembu's remarks may serve as a catalyst for self-reflection in India’s tech sector, especially as global competition intensifies and emerging markets like Vietnam and Eastern Europe grow in prominence.

As India’s software industry grapples with shifting paradigms, voices like Vembu’s are becoming harder to ignore—offering both a critique and a blueprint for future resilience.