Claude's earliest work mirrors how India's IT outsourcing industry was born
India's software outsourcing industry was founded on code porting and overnight task execution; Claude is performing exactly this type of work today, which is why TCS and Infosys stock prices have fallen 40% over the past year.
The argument · tap a timestamp to hear it
Internal skepticism forced TCS to pursue external clients
In 1966, Tata Group established what would become TCS as an internal data processing unit for its subsidiaries. But when the key champion died, the group's other companies—with the exception of Tata Power—showed little interest in using the new division. Faced with cost pressure and internal indifference, the unit was forced to start accepting external contracts. The strategy worked well enough to win business away from IBM itself. A division that lacked confidence within its own conglomerate was inadvertently pushed toward export markets.
One foreign exchange law created software exports by necessity
In 1973, India's government under Indira Gandhi passed the Foreign Exchange Management Act, capping foreign investors' ownership in joint ventures at 40%. To enter the Indian market, Burroughs agreed to a joint venture with Tata. In 1974, TCS imported a Burroughs computer worth $300,000. Under the government's software export plan, TCS had to earn back twice the import cost—$600,000—in foreign exchange within five years. This hard quota forced TCS into the business of porting code, which at one point made up 20-40% of its early business.
IBM's refusal to dilute ownership forced it to exit India
The same foreign exchange law required foreign investors to cap ownership at 40%. Britain's ICL complied; IBM did not. In 1977, IBM withdrew from India. The decision had little to do with control—even at 40% ownership, IBM could have retained operational dominance. The real reason was that IBM was enforcing this policy uniformly across the globe. IBM's exit left a vacuum that many companies eyed, but in hindsight, most of the opportunities that emerged had little to do with IBM's original business. The mere sense that "an opening existed" was itself enough to spark new ventures.
A satellite link moved outsourcing from client sites back home
At the time, installing a fixed telephone line in India required a 2- to 5-year wait. Telecommunications infrastructure was seen as the industry's biggest bottleneck, which is why 75-80% of export revenue came from deploying engineers directly to client sites ("body shopping"). In 1985, Texas Instruments funded a satellite data link between the U.S. and Bangalore, and India's Department of Electronics waived 26 regulations to make it happen. This enabled 24-hour development cycles. With such communication links and later software technology parks, development work could be retained in India—where salaries ran at one-third of Western levels. By the late 1990s, on-site assignments dropped from above 80% to 59%.
Importable UNIX source code gave programmers a foundation
India restricted finished software imports but not source-code imports. UNIX source code was freely available, so small-computer makers like DCM (迪凯迈 通用) and HCL (慧与 IT) adopted it widely—especially the Berkeley variant. In 1985, India's central bank designated UNIX as the standard operating system for the banking sector. This gave an entire generation of Indian programmers deep UNIX expertise. Later, when Sun Solaris, IBM AIX, and HP-UX variants became embedded across American enterprise IT systems, Indian companies needed only UNIX hardware in-house to guarantee their code would run in a customer's environment.
The Y2K crisis tripled TCS's annual revenue in three years
U.S. companies faced a shortage of domestic programmers. H-1 visa quotas rose from 65,000 in 1998 to 115,000 in 1999. TCS opened a "Y2K office" in Chennai, where 1,000 programmers working a semi-automated 17-step process repaired 2 million lines of COBOL code daily. The Y2K crisis generated roughly $2.3 billion in revenue for India's software industry. TCS's revenue jumped from $125 million in 1995 to $419 million in 1999, while profit margins stayed at 32%. Infosys derived over 20% of its revenue from Y2K in both 1998 and 1999; the company issued ADRs and went public on the U.S. stock market in 1999 with a year-end valuation of $20 billion.
General Electric once accounted for half of Wipro's software revenue
In the 1990s, GE alone supplied 50% of Wipro's software revenue and 20-30% of Infosys's revenue. This became crucial credibility for India's IT industry. As recently as 2005, GE still accounted for 15% of TCS's overseas revenue. But after the dot-com bubble burst in 2001, the narrative around outsourcing shifted from "filling a talent gap" to a political issue. A 2003 BusinessWeek cover story claimed 3.3 million jobs and $136 billion in wages would flow overseas. During the 2004 election, Senator John Kerry called such companies "Benedict Arnolds" (traitors). Economists, however, pointed out that aggregate data did not actually prove outsourcing caused U.S. job losses or overall harm—it is difficult to confirm whether the new Indian jobs truly replaced work Americans would otherwise have done.
AI triggers first layoffs at India's IT giants in ten years
India's IT exports grew from $9.5 billion in 2003 to $76 billion in 2013, then $194 billion in 2023, directly supporting 6 million jobs and accounting for 7-8% of GDP. But industry growth plummeted from 8.4% in 2023 to 3.8% in 2024. New revenue generation fell from $19 billion to $9 billion. In 2023, the industry added nearly 300,000 jobs; in 2024, only 60,000. Infosys cut 26,000 workers through layoffs and attrition in 2024—its first contraction since going public. TCS saw headcount drop by 13,000 in 2024—the first decline since 2005—and cut 12,000 more (2% of the workforce) in July 2025, TCS's largest-ever layoff. Markets attribute these cuts to AI.
In their own words · checked verbatim
This latter practice would become widespread in the Indian IT export industry and is today known as "body shopping".
It had less to do with control - IBM can still exercise full control with only 40% - than the fact that it was their global policy.
Funded with $250 from Murthy's wife, they started Infosys in July 1981.
broke 26 separate rules to accommodate TI's Bangalore subsidiary and are willing to break more
Imports of finished software were restricted, but source code imports were not.
Tata Consultancy set up a "Y2K office" in Chennai dedicated solely to fixing Y2K code.
I am struck by how similar the early jobs done by Claude are to those ones done by the IT exporters: Porting software, 24-hour development cycles by submitting a long-running job before going to bed, and other knowledge work.
Figures
| India's IT export total, 2023 | $194 billion | 28:01 |
| India's IT sector employment and GDP contribution | 6 million jobs, 7-8% of GDP | 28:01 |
| Industry growth rate, 2024 | 3.8% (2023: 8.4%) | 29:02 |
| Infosys and TCS stock decline, since December 2024 | 40% | 30:06 |
| Y2K revenue for Indian software industry | $2.3 billion | 22:43 |
| TCS revenue growth, 1995-1999 | $125 million → $419 million | 22:43 |
| GE's share of Wipro software revenue, 1990s | 50% | 24:49 |
Glossary
- FERA
- India's 1973 Foreign Exchange Management Act, limiting foreign-investor ownership to 40% in joint ventures.
- body shopping
- Deploying company engineers directly to customer sites overseas for on-site development work.
- License Raj
- India's post-independence system of government licensing that tightly controlled economic activity until 1991.
- ADR
- American Depositary Receipt; a financial instrument allowing foreign companies to list on U.S. stock markets.
- Software Technology Parks (STP)
- Indian export zones offering import tax exemptions and dedicated high-speed U.S. data links.
How to listen
Entrepreneurs and investors interested in global software outsourcing, emerging-market industry history, or AI's impact on knowledge work.
The section thanking collaborator Zoso at the beginning can be skipped without affecting the main narrative.