India's IT sector bet its future on AI access it doesn't actually control

**Rachel Varghese** (0:01)
If you're someone who uses Claude, then you've seen the little note that pops up about Fable 5 When you try to switch models on the platform, the top option, which is usually the best one, and which right now claims to be for your toughest challenges, is grayed out. And it says that it is currently unavailable. It has been that way for users around the world since June 12th, ever since a US export control order that targeted Anthropic's newest models, Fable 5 and Mythos 5 was released. The initial order required the company to take it down for foreign nationals only. But because Anthropic couldn't confidently identify the citizenship of its users, it ended up blocking up those models for every user around the world. Now, everyone has been talking about this shutdown. But something happened just the day before June 12th that got completely overshadowed by these headlines. On June 11th, Tata Consultancy Services or TCS announced a huge partnership with Anthropic. 50,000 employees would be trained on Claude. A dedicated business unit would be set up so that TCS could package Anthropic's models into its enterprise offerings and tailor make it to suit different clients from different sectors.
Also, TCS would get early access to Anthropic's latest models all before public release. Now, this is the kind of exclusive partnership that allows TCS the opportunity to reliably say that it understands a model far better than any competitor who only got access to it on release. And that's important for a company like TCS. Because ever since Agentic AI really blew up earlier this year with Claude Cowork, IT service companies like TCS are under an existential threat. And they even have a name for it. At the end of April this year, HCL Tech, Infosys, TCS and Wipro all announced their quarterly results. See Vijay Kumar, who is the CEO of HCL, called it AI deflation, which he explained as a dip in future revenue of about 3 to 5% in the coming year and maybe even more in the future.
Even TCS saw its revenue slip 0.5% year over year and K. Kritivasan, its CEO, admitted that even he is seeing the deflation, though he called it de-growth. The only part to survival for them? To reposition themselves as AI integration partners. And that's what the TCS-Anthropic partnership was all about. And it's not just TCS that's been making these moves either. For example, in mid-May this year, Xeer Tech invested $150 million in Sarvam AI, becoming the lead investor in Sarvam's Series B round. Also, in February this year, as Anthropic was opening its first office in India, it announced a partnership with Infosys. So clearly, for TCS, this strategic repositioning was in full swing. Except, then, the fabled Mythos shutdown brought that swing to an uncomfortable pause. And a realization. The frontier models that it had just got an exclusive access to were suddenly gone.
The thing is, India's IT sector has always depended on their access to the best of global technology. And AI has only intensified that same dependency. So, when a single US decision limited access to two of the most advanced AI models in the world, it revealed that that access was a privilege with no protection. And while India focuses on building out its sovereign AI capacity, its IT industry has already built its survival pivot onto an inherent vulnerability. And sovereign AI models alone are not a solution.
Welcome to Daybreak, a business podcast from The Ken. I'm your host, Rachel Varghese, and every day of the week, my co-host, Snigdha Sharma and I will bring you one new story that is worth understanding and worth your time. Today is Wednesday, the 24th of June.
An exclusive deal with one of the world's leading AI companies should have been a breath of relief for TCS. Instead, tech leaders across India are highlighting the sheer vulnerability of India's situation with regards to AI. And this time, it's not just about digital sovereignty for security reasons. It's about how one of India's largest exports, the arbitrage of IT companies like TCS, Infosys and HCR Tech is entirely dependent on a foreign stack of systems. Nikhil Narendran, a tech policy thought leader and partner at law firm Trilegal, told ET in a report that India's IT services industry was built on the assumption of open access to the best global technology. That assumption has now developed a serious crack, which in turn is putting IT firms at a competitive disadvantage and also a deeper risk of strategic dependency.
And the thing is, while sovereign AI is in fact the right long-term answer, it's hardly something that could have been of help in this particular situation. You see, while sovereign AI in a very specific, narrow sense will be built out soon in India, in about three to five years, it won't really be able to replace the capabilities that the IT sector companies need, like cybersecurity, advanced coding, scientific work and complex agentic tasks. And the dependence on these capabilities have already been built out by these companies. At this stage, AI has become a necessary part of these companies' workflows. It's part of customer support systems, software development pipelines, analytics platforms, internal knowledge bases, content production workflows and decision support systems.