Whalesbook
Sridhar Vembu, founder and Chief Scientist of Zoho Corp, has issued a stark warning about India's economic future and the software industry. He described the ongoing "brain drain" of skilled professionals as an economic crisis that harms the rupee's strength and creates deficits in foreign exchange and technology. Vembu also sees artificial intelligence (AI) not just as a tech shift, but as a critical fight where companies must adapt quickly or risk becoming irrelevant.
Fighting for AI Dominance
Vembu is spearheading Zoho's internal efforts to challenge the dominance of current AI models. From Tenkasi, he directs a team aiming to make leading global AI models less relevant. He calls this "the toughest fight of my professional life" and a strategic shift from simply using AI to actively developing it. Zoho is building its own Large Language Model (LLM), the Zia LLM, as part of a broad AI plan focused on privacy, efficiency, and business relevance. The company reported over 16 billion AI API calls in the first half of 2025, showing strong customer use of its AI features. This move contrasts with simply adding outside AI, as Zoho aims to provide alternatives to tech giants like OpenAI and Anthropic. Vembu had previously suggested India focus on smaller, efficient AI models instead of competing in expensive, large LLM development, using India's talent rather than scarce resources.
Economic Impact of Talent Drain
The talent drain remains a major concern, with about 18 million people leaving India each year – nearly double the rate of any other country. This significantly affects the tech sector. One-third of top graduates from elite Indian Institutes of Technology go abroad, creating a major talent shortage. While professionals working overseas send over $111 billion annually in remittances, this reliance creates long-term dependencies: India covers the training costs while the U.S. gains the skilled workforce. The success of Indians in the U.S. is significant, but it's also facing social friction and resentment linked to economic worries and political talk. Their high visibility, a mark of achievement, can lead to negative reactions, making India's national standing important for the diaspora.
AI's Impact on India's IT Sector
India's IT industry faces a potential 30% loss in market share from AI automation. Companies like OpenAI are now entering the software services market directly, rather than relying on traditional IT outsourcers for AI tools. This transforms the industry model from using cheaper labor to leveraging AI for efficiency and growth with fewer staff. While AI speeds up initial development, Vembu and others stress that human judgment is still vital for testing, refinement, compliance, and upkeep. With AI making senior architects more productive, the need for junior engineers could decline, raising questions about future talent development. The sector is also seeing layoffs, sometimes disguised as "AI washing" to cut costs. Major firms like TCS and Infosys have already reduced their employee numbers.
Zoho's Risky Strategy
Zoho's bold strategy carries substantial risks. As a company that largely funds itself, its capacity for rapid scaling against venture-capital-backed global competitors with vast AI research budgets is limited. Vembu's goal of making current AI models irrelevant is an extremely ambitious and risky move that could weaken Zoho's standing. Competition from AI-first companies like OpenAI and Anthropic poses a major threat to Zoho's market share and business. Additionally, the continuous talent drain from India's IT sector depletes its workforce, even as it aims to use AI for expansion. The social issues linked to the Indian diaspora's success also introduce geopolitical complexities that could affect global views and opportunities for Indian professionals. While self-funding ensures independence, it might also restrict aggressive growth compared to heavily funded competitors.
Outlook: Navigating the AI Future
Despite these hurdles, India is well-positioned to potentially lead the U.S. in AI adoption, thanks to its young and optimistic population. However, steady growth will depend on strategic focus, perhaps on specialized AI uses rather than direct competition in the costly LLM market. Zoho's focus on privacy, efficiency, and creating integrated, secure platforms for mid-sized and large businesses offers a distinct path. The company's success now depends on executing its in-house AI development effectively while managing the economic and social shifts from global talent movement and the fast-paced AI changes.