The AI threat to India’s IT jobs machine

The country has bet big on tech services but disruption is coming

IT played a crucial role in driving India's economic growth. But many tasks that underpin the industry can now be performed by AI. Photo by Indranil Aditya/NurPhoto via Getty Images

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It was around 1.30 am by the time Rakesh, a 45-year-old Oracle employee in the Indian technology hub of Bengaluru, finally shut his laptop after a long day of calls and presentations.

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A few hours later, as the sun rose on a March morning, his phone started ringing incessantly. Colleagues were calling, urging him to check his emails. When he did, he discovered that his career with the United States software giant was over: he had lost his job, along with about 10,000 other Indian employees, according to the All India IT and ITeS Employees Union.

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What made the redundancy particularly galling for the married father of two was the nature of the work they had been doing before his dismissal.

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“We harnessed AI technology and built tools using that,” he says. “The tool that we gave our sweat, blood and bones to — it threw us out. After showing our loyalty, the company did not stand with us.” Oracle did not respond to a request for comment.

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IT services have played a crucial role in driving India’s economic growth and expanding its middle class. But many of the formulaic tasks that underpin the industry, which employs 6 million people and contributes about seven per cent of GDP, can now be performed by generative AI. If the sector cannot pivot to higher-value work, that could spell more trouble for a government already struggling to create enough jobs for India’s huge workforce.

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After years of headcount growth the sector has begun to shed jobs; a July report from rating agency S&P stated that by March this year Infosys and Wipro had reduced staffing by five-six per cent from 2023 levels, with similar trends evident at Tata Consultancy Services (TCS) and Tech Mahindra Ltd.

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This photograph taken on May 13, 2026 shows engineers annotating data from cameras recording actions through motion capture at AI data company Objectways’ office in Tamil Nadu’s Karur district. Photo by R.Satish BABU/AFP via Getty Images

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Investors are also turning bearish on the sector’s prospects; the Nifty IT Index, which tracks India’s largest IT service companies, has dropped 18 per cent so far this year, underperforming the blue-chip Nifty 50 index.

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Despite its abundant tech talent, India’s contribution to global AI innovation remains meagre, raising fears that the country could end up suffering more of the disruption of AI while harvesting fewer of its rewards.

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Prime Minister Narendra Modi declared this year that AI would provide millions of new jobs for Indians. But V Anantha Nageswaran, the government’s own chief economic adviser, has flagged the risks. “Firms that once relied on India’s comparative advantage to handle a bulk of their work may no longer need to do so,” he wrote at the start of 2026. “It risks hollowing out India’s core value proposition if adaptation lags.”

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DK Shivakumar, the chief minister of Karnataka, the opposition-run state that includes Bengaluru, said in April that fast-evolving AI technology “will cut a lot of jobs… I could also see there definitely could be 50 per cent of jobs cut in Bangalore and different parts of the country.”

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Frustration over a lack of jobs has already reached boiling point for many young Indians. In July, tens of thousands took to the streets in so-called cockroach protests against corruption in the education system and what many see as a scarcity of opportunity in the world’s fastest-growing major economy. If the impact of AI spreads to India’s manufacturing sector, the consequences could be even more serious.

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Even as more Indians attend college and university, nearly 40 per cent of graduates under 25 years old are unemployed, according to a recent study by Azim Premji University.

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The IT services industry accepts that the old model is changing as AI threatens the foundations of Indian outsourcing. “With the new age,” says Rajesh Nambiar, president of Nasscom, a lobby group that represents India’s tech sector, “you don’t need as many people as you did before.”

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Indian tech’s ‘double-edged sword’

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For more than three decades, India’s IT services industry has been one of the country’s defining success stories. After economic liberalization in the 1990s, software exports and back-office outsourcing helped transform India into the world’s tech support centre.

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Built on lower-wage but highly qualified and English-speaking skilled labour, the sector generates more than US$300 billion a year in revenue and is the largest private-sector provider of formal work in the country. It has created a route into the middle class for millions of graduates.

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Throughout that time, the industry’s growth relied on a simple equation: more clients plus more work equals more demand for tech engineers. But that relationship is starting to break down.

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“The revenue and the linkage to headcount that used to be linear earlier, that is definitely going to get disrupted,” says Sandeep Kalra, chief executive of the Pune-headquartered IT service company Persistent Systems. “Using AI, you can actually do more work with less.”

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The shift comes as global economic uncertainty and geopolitical tensions combine with the deployment of AI — particularly by U.S. companies, which are India’s largest customers — to curb demand for IT services.

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Analysts at S&P forecast in July that revenue growth at three of the top Indian IT companies whose bonds it rates — Infosys, HCL Tech and Wipro — will slow to two to four per cent over the next two financial years, compared to four to six per cent in the previous year. They described AI as “a double-edged sword” for those businesses, which could have a “pronounced impact” over the next year or two.

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“It threatens their old business model — like a robot replacing factory workers — but also opens new doors if they can adapt and become the robot’s operator, trainer, or fixer,” the analysts wrote. “How quickly and effectively these firms shift from offering manpower to selling expertise and solutions in the AI era may be a determining factor.”

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That warning came after comments in June from N Chandrasekaran, chair of TCS, the largest Indian IT contractor, who predicted AI agents could take on half of the company’s tech roles within three years. “The company will not be hiring the kind of numbers [it] used to hire,” he said.

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Anecdotal evidence suggests the rising adoption of AI is already raising competition and putting downward pressure on the prices India’s outsourcers can charge. Last month, Indian rating agency Crisil forecast weak industry revenue growth of one to three per cent over the coming year as clients reassess tech spending, renegotiate some existing contracts and sign fewer new deals.

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Signage during the AI Impact Summit in New Delhi, India, on Wednesday, Feb. 18, 2026. Photo by Ruhani Kaur/Bloomberg via Getty Images

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But Indian IT executives insist that AI will reshape rather than replace their roles. They argue that, whether companies deploy increasingly expensive western large language models or their open-source Chinese alternatives, demand for people who can integrate that technology into complex businesses will only increase.

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“Making technology decisions across the infrastructure to intelligence stack is becoming much more challenging because the technology is frequently changing so fast,” TCS chief operating officer Aarthi Subramanian told analysts in July.

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“The big role that we are playing is helping customers make [these] technology choices… how do you integrate these technologies into an existing diverse complex landscape? I think that is where we play a very big role.”

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Hari Shetty, chief strategist and technology officer at rival Wipro, agrees. “The world has changed, technology has changed, the needs have changed, client desires have changed,” he says. “None of the deals that we are doing today have the same exact format as what you did five years ago.”

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Others argue Indian tech work is moving up the value chain. The country’s business and software services exports have doubled in dollar terms since 2022, says Shilan Shah, deputy chief emerging markets economist at Capital Economics.

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Capital Economics calculates the number of GCCs has expanded to about 2,000, up from 1,400 in 2020 and employing 1.9 million Indians. The third-party “traditional outsourcing model will get hit, with headcounts coming down”, says Shah, adding that GCC growth may mitigate that hiring impact. “Obviously it requires a level of reskilling or upskilling, but there is that avenue to then suck up some of that employment.”

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New Delhi is also hoping that new jobs will replace old ones after India’s biggest companies and conglomerates, including Adani Group and Tata, pledged more than US$200 billion in AI-related investments earlier this year. In 2024, the Modi government budgeted Rs104 billion (about US$1.1 billion) over five years for its IndiaAI Mission to help expand the country’s tech infrastructure and training.

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“We need people who are better adapted to using AI, which is why AI skilling is an important part of what we are supporting,” says India’s IT secretary S Krishnan. “While certain kinds of tech jobs may go out, there will be certain other newer kinds of tech jobs that should get created.”

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‘Make in India’ robots

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At a textile factory in Karur, a small town nestled between dark green fields in India’s southern industrial state of Tamil Nadu, 26-year-old Gowtham S and about two dozen others are ironing clothes.

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They wear GoPro cameras on their heads or the latest Meta smart glasses with built-in cameras. They are paid about US$100 extra per month to record all their work and their videos will be used to train future AI-powered robots to do exactly the work being done in the factory, owned by Indian textiles group Texworths.

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Pradeesh Dhandapani, India head and chief operating officer of Objectways, a data annotation company with offices in Karur, spotted the rising demand for so-called egocentric videos — feeds recorded from the perspective of human eyes — to help train AI-powered robots.

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Dhandapani says his company employs around 700 people to gather 1,500 hours of video a day. Many of them are in Karur and they include factory workers, students and housewives as training humanoid robots requires thousands of hours of diversified videos of “all the day-to-day activities that a normal human being performs”.

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“This capture of data from A to Z is the building block for the actual robotics,” he says. Big tech companies such as Amazon, Tesla and Nvidia expect his company to deliver video footage equivalent to six months of an individual’s daily tasks each day.

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Beyond services roles in India’s main cities, the other main driver of the Modi administration’s formal job creation push has been an attempt to bring about a “Make in India” manufacturing renaissance through subsidy schemes, corporate tax cuts and infrastructure spending.

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But it has yet to fully take off. Manufacturing’s share of GDP has languished at or below 15 per cent of GDP since Modi came to power in 2014, with India accounting for just 1.8 per cent of global merchandise exports.

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AI robots replacing or automating such human factory work in India could further thwart New Delhi’s ambition to employ swaths of Indians in manufacturing, as countries such as China and Vietnam did during their industrialization. But for now AI is creating a new source of income in towns such as Karur, home to about 400,000 people, where secure employment opportunities are limited.

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Gowtham, who uses consumer AI platforms such as ChatGPT in his daily life, knows that footage from his Meta glasses is being used to train machines that may one day supplant him. But the extra income is welcomed by his family and Gowtham remains positive that “AI is to help humans — not to replace us”.

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Attendees at the AI Impact Summit in New Delhi, India, on Friday, Feb. 20, 2026. Photo by Ruhani Kaur/Bloomberg

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Others are less optimistic. Arvind Subramanian, senior fellow at the Peterson Institute for International Economics and a former chief economic adviser to Modi’s government, wrote in the FT last month that long-term tech shifts “cast a pall” over India’s labour market. Along with AI disruption looming over India’s IT services growth engine, he said, another danger comes from “robots substituting unskilled labour”.

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There is money to be made by playing up such employment anxieties. YouTube in India serves up AI-generated adverts for training courses in which experienced older employees are humiliated by their bosses and threatened with redundancy as younger colleagues race ahead thanks to their mastery of AI.

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The IT industry’s unions argue the reality is more complicated. AI is often used as an excuse to lay off workers and is part of a “false narration”, says Alagunambi Welkin, general secretary of the Union of IT and ITeS Employees, which organized protests last year against TCS after it announced 30,000 lay-offs to reposition itself in the AI era.

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“That narration is set by the companies to legitimize their periodic layouts, which they do every year whenever they want to optimize their balance sheets,” Welkin says. “In India, AI is going to create more jobs, but the unfortunate part is [that] it is going to increase the intensity of work.”

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Either way, India’s tech hiring has weakened markedly, with active job openings in June falling to their lowest level in 28 months, according to Bengaluru-based recruitment consultancy Xpheno. It estimated there were about 93,000 live tech vacancies that month, down 14 per cent from the previous month and 17 per cent from a year earlier.

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For the hundreds of thousands of new computer science and engineering graduates pouring out of India’s colleges and universities each year, the job market is “very tough”, says Kamal Karanth, co-founder of Xpheno. “We have an oversupply problem… even if they’re [AI] ready today, we don’t have that many jobs.”

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That reality hit former Oracle worker Rakesh earlier this year. After being sacked, he sought to position himself as best he could for the choppy job market, swotting up through AI courses, using his severance package to pay off his household debt and drawing on his wife’s salary as a schoolteacher.

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After applying for hundreds of jobs, Rakesh was shortlisted for just two — eventually finding work at another tech company where he earns Rs75,000 (about US$785) a month, about a quarter of his salary at Oracle. “Everything is on a very, very tight budget at the moment,” he says.

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Still, Rakesh considers himself lucky. Months later, many of his former colleagues at Oracle have yet to find work. “I have a very big WhatsApp group who are looking for jobs at this point of time,” he says. “In India, a traditional IT job is totally dead.”

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© 2026 The Financial Times Ltd

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